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The May 2014 I-Bond Rate
Old 04-28-2014, 09:17 AM   #1
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The May 2014 I-Bond Rate

It's that time again, when we play guess the new inflation component that will take effect May 2014.
From what I've read, the expert guessors are looking for a variable rate of 1.83%, which when added to the fixed rate of .20 gives us a fairly sweet rate exceeding 2%.
Will the current fixed rate carry over? Will it be dropped or even raised?
Good questions if you are trying to decide if buying today and capturing the fixed rate, or taking your chances on what May could bring.
Myself, I bought a few $$ worth today for the safe and secure portion of my portfolio. These new bonds will pay 1.38% for six months retroactive to April 1, after which the new 2% plus will kick in for 6 months. The payout is tax free at the state level, and in general beats current CD rates.
Of course all of the above hinges on the May rate matching the guesstimate.
As always YMMV.
Anyone else keep some I Bonds on hand?
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Old 04-28-2014, 10:27 AM   #2
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Originally Posted by JPatrick View Post
From what I've read, the expert guessors are looking for a variable rate of 1.83%, which when added to the fixed rate of .20 gives us a fairly sweet rate exceeding 2%.
As you may already know, the only guesswork is in the fixed rate. The variable rate for the next six months is set in stone. It's calculated to be twice the change in CPI over the last six months. The most recent CPI reading is from March, 2014, when it was 236.293. Six months before that, it was 234.149 as of September, 2013. So the calculated variable rate is 2*(236.293-234.149)/234.149 = 1.83%, as you indicate.


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Will the current fixed rate carry over? Will it be dropped or even raised?
Good questions
Good questions, indeed. Unlike the variable rate, I have yet to see a convincing explanation of how the US treasury decides on the semiannual fixed rate adjustment. My overall impression is that they perform some secret calculation that is designed to keep i-bond interest rates roughly competitive with TIPS. Since TIPS have been rallying recently, that would increase the risk that the new fixed rate might go down.




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Originally Posted by JPatrick View Post
Myself, I bought a few $$ worth today for the safe and secure portion of my portfolio. These new bonds will pay 1.38% for six months retroactive to April 1, after which the new 2% plus will kick in for 6 months.
Unless the US treasury decides to set a negative fixed rate, (which they've never done before) it's certain that you would be getting a better interest rate for the next six months by waiting until May 1 to purchase. On the other hand, as I said above, I think there is a very good chance the fixed rate will be reduced on May 1. So the wisdom of buying now is dependent on your holding period. If you are likely to sell them after a year or so, you should probably wait. If you intend to hold long term, it might be better to lock in a positive fixed rate, even a paltry 0.2%.


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Anyone else keep some I Bonds on hand?
I try to monitor the variable rate each April and October to see if there will be a big increase or decrease. I've made some very good investments by keeping track of the fluctuations, but I currently don't own any ibonds. The 1.83% variable rate is good, not great, so I probably won't be buying any for a while.
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Old 04-28-2014, 11:30 AM   #3
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Good points one and all Karluk.
I look at the bonds as a subsitute for short to midterm CD's. If and when they fail to impress in that category, then I'm out with no reservations about the penalty.
As part of the overall financial plan, these bonds are a income gap filler for DW. My reading of the tea leaves tells me that I'll be checking out before her and taking with me a good chunk of the monthly pension payout. The 4% withdrawal from the portfolio stash will cover the bulk of that, but there's no guarantee. Sooo, what could be easier than a monthly trip to the bank (or a few keystrokes) to cash an I Bond or two?

My reason for jumping in today versus May, is to ensure I lock in that fixed rate, however paltry. The only way I'll feel bad is if they actually raise the fixed in May.
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Old 04-28-2014, 11:39 AM   #4
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For us, I-bonds will serve as an income gap filler until we can start accessing our IRAs. So we'll keep on buying them, up to the limit, until DW retires completely.
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Old 04-28-2014, 11:42 AM   #5
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I admit I know nothing but that doesn't keep me from offering my opinion. I just recently bought my quota after inflation component was released and to ensure that I capture the big .2% fixed rate. I do not see how they would add a fixed component this time when the inflation part is already going to be higher than the 5 year treasury rate currently is. I will take my 1.38% for 6 to ensure the 2% plus the following 6 months. I do not like the majority portion of my money in the stock market, so I will continue to stack nickels from my IBond purchases.


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Old 04-28-2014, 12:00 PM   #6
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Anyone else keep some I Bonds on hand?
I always buy $10k at the end of April. I made my purchase last Friday. I like the tax deferred interest combined with the exemption from state income tax. They will substitute for annuity payments when I get older. I am a fairly conservative investor.
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Old 04-28-2014, 01:05 PM   #7
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While we definitely missed out on better rates over the years, our IBond purchases from the early years, when you could buy $30k/person/yr... have produced an average yield of from 4.4% to 6.0% cumulative to date. Our mistake was taking out $60K of the highest interest bonds to buy our current home in 2004.
...but no complaints... slept well through the 2008/09 years.
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Old 04-28-2014, 02:09 PM   #8
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Anyone else keep some I Bonds on hand?
I bought I Bonds during the 8 year run up to us retiring and have been spending them to help bridge the gap until we get access to Tax advantaged accounts, pensions and SS.

I very much like the Savings Bond Wizard you can download from the website to keep track of your bonds. Makes it very easy to select which bonds to sell each year.
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Old 04-28-2014, 03:03 PM   #9
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I bought I Bonds during the 8 year run up to us retiring and have been spending them to help bridge the gap until we get access to Tax advantaged accounts, pensions and SS.

I very much like the Savings Bond Wizard you can download from the website to keep track of your bonds. Makes it very easy to select which bonds to sell each year.

Alan, I have read frequently the benefit to the savings bond wizard, but I am missing what it helps over just looking on the TD site as it already shows my bonds and what each one is worth with the interest included. Is it because some people accumulate so many? I just buy once in bulk each year so I do not have that many accumulated over the years.


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Old 04-28-2014, 03:26 PM   #10
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Alan, I have read frequently the benefit to the savings bond wizard, but I am missing what it helps over just looking on the TD site as it already shows my bonds and what each one is worth with the interest included. Is it because some people accumulate so many? I just buy once in bulk each year so I do not have that many accumulated over the years.


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We do have a lot of bonds and I like the wizard because it shows all the bonds in a very easy to read matrix, and you can enter future dates. It also allows me keep a history, so when I cash a bond I mark it as cashed rather than delete it. The wizard also shows the current interest rate for each bond so it is easy to see which bonds I want to cash in.

To log onto TD is pretty tedious with a very long user number and 2 step authentication, although not nearly as difficult as it used to be with that card you used to have handy.

ETA
I also have both mine and DW's bonds listed in the wizard, so can see the whole picture rather than having to log on twice.
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Old 04-28-2014, 03:38 PM   #11
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We do have a lot of bonds and I like the wizard because it shows all the bonds in a very easy to read matrix, and you can enter future dates. It also allows me keep a history, so when I cash a bond I mark it as cashed rather than delete it. The wizard also shows the current interest rate for each bond so it is easy to see which bonds I want to cash in.

To log onto TD is pretty tedious with a very long user number and 2 step authentication, although not nearly as difficult as it used to be with that card you used to have handy.

ETA
I also have both mine and DW's bonds listed in the wizard, so can see the whole picture rather than having to log on twice.

Thanks, Alan. Yes, bypassing the login process saves a bunch of time for a quick look. As mine is actually a three step process. With the first being, "where is my book that has all my passwords at".


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Old 04-28-2014, 03:44 PM   #12
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Thanks, Alan. Yes, bypassing the login process saves a bunch of time for a quick look. As mine is actually a three step process. With the first being, "where is my book that has all my passwords at".


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Exactly
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Old 04-28-2014, 09:06 PM   #13
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Quote:
Originally Posted by JPatrick View Post
It's that time again, when we play guess the new inflation component that will take effect May 2014.
From what I've read, the expert guessors are looking for a variable rate of 1.83%, which when added to the fixed rate of .20 gives us a fairly sweet rate exceeding 2%.
Will the current fixed rate carry over? Will it be dropped or even raised?
Good questions if you are trying to decide if buying today and capturing the fixed rate, or taking your chances on what May could bring.
Myself, I bought a few $$ worth today for the safe and secure portion of my portfolio. These new bonds will pay 1.38% for six months retroactive to April 1, after which the new 2% plus will kick in for 6 months. The payout is tax free at the state level, and in general beats current CD rates.
Of course all of the above hinges on the May rate matching the guesstimate.
As always YMMV.
Anyone else keep some I Bonds on hand?
Nice to know. I bought some (as usual) in Jan and nice to see a rate increase which will apply to my new ones in July.
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Old 04-29-2014, 10:33 AM   #14
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As always YMMV.
Anyone else keep some I Bonds on hand?
No, but I may.

Thanks for posting this information.
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Old 04-29-2014, 10:41 AM   #15
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No, but I may.

Thanks for posting this information.

If you Chuck, a few details in case you do not know... If you want to be 100% sure you get the fixed .2% they probably need to be bought today as it takes a day or so to process. Some people in past have complained they didn't get the previous rate but received the next 6 month rate because of slow processing. Interest is credited to you from beginning of month even though you can buy at the end of the month. If you do not keep them 5 years, you will forfeit last 3 months of interest, and they cannot be redeemed at all the first 12 months.


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Old 05-01-2014, 09:35 AM   #16
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May 1, 2014

Effective today, Series EE savings bonds issued May 2014 through October 2014 will earn an annual fixed rate of 0.50% and Series I savings bonds will earn a composite rate of 1.94%, a portion of which is indexed to inflation every six months. The EE bond fixed rate applies to a bond’s 20-year original maturity. Bonds of both series have an interest-bearing life of 30 years.

Rates for savings bonds are set each May 1 and November 1. Interest accrues monthly and compounds semiannually. Bonds held less than five years are subject to a three-month interest penalty.

I Bond Earnings Rate of 1.94% includes a Fixed Rate of 0.10%

The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 1.94% earnings rate for I bonds bought from May 2014 through October 2014 applies for the first six months after the issue date. The earnings rate combines a 0.10% fixed rate of return with the 1.84% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The CPI-U increased from 234.149 in September 2013 to 236.293 in March 2014, a six-month increase of 0.92%.
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Old 05-01-2014, 09:57 AM   #17
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Well then, I am glad I bought last month to get the higher fixed rate. Not that the difference is going to get me a piece of bubble gum. But I was buying anyways, and I like to get the opportunity occasionally to fool myself into thinking I actually know what I am doing.


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Old 05-01-2014, 10:42 AM   #18
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Well then, I am glad I bought last month to get the higher fixed rate. Not that the difference is going to get me a piece of bubble gum. But I was buying anyways, and I like to get the opportunity occasionally to fool myself into thinking I actually know what I am doing.


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Yes, it turns out the bird in hand was indeed worth more than the two in the bush, or however that saw goes.
Now off to daydream about how I'm going to spend that extra .10%.
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Old 05-01-2014, 10:49 AM   #19
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Yes, it turns out the bird in hand was indeed worth more than the two in the bush, or however that saw goes.

Now off to day dream about how I'm going to spend that extra .10%.

Ya, I miss the good ol days where I wouldn't bother to waste my time moving a CD for 1%. Now I am reduced to rejoicing over a
.10 of a percent victory.


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Old 05-01-2014, 11:30 AM   #20
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Ya, I miss the good ol days where I wouldn't bother to waste my time moving a CD for 1%. Now I am reduced to rejoicing over a
.10 of a percent victory.
I too am rejoicing over my purchase on 04/29... Karluk's post convinced me to go ahead with the purchase before 05/01. Thanks karluk!

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Good questions, indeed. Unlike the variable rate, I have yet to see a convincing explanation of how the US treasury decides on the semiannual fixed rate adjustment. My overall impression is that they perform some secret calculation that is designed to keep i-bond interest rates roughly competitive with TIPS. Since TIPS have been rallying recently, that would increase the risk that the new fixed rate might go down.
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