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Old 09-12-2009, 06:39 AM   #21
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Ha! to you, have you checked lately. You are missing "something", a NEGATIVE inflation adjustment of -5.56%.

You evidently don't know, you should have said your I bonds pay 0 to 3.25%. Don't know what you mean by "real rate", but I bonds have a fixed rate + an inflation rate adjustment = composite rate, recalculated every 6 months. The calculation of the composite rate is complex on the inflation rate adjustment portion, but if you tell me the purchase month and year, I will tell you your fixed rate and the 6 month period that you will receive 0% interest, beginning some time in 2009. For those 6 months there is no gain in value. It is because the CPI-U was much lower in May than last November, thus a negative number in the inflation adjustment that more than cancels out the fixed rate when added together, thankfully never adjusted to less than 0.0%.

The following 6 months you may get more than 0%, but I think unlikely to get 6% so as to average 3%, as the next inflation adjustment calculation is in November.

I agree there is not an across-the-board reason for redeeming I bonds, and in fact am keeping some of mine, the ones with a higher fixed rate, even if now paying 0.0%. I like the inflation protection as serious inflation may be coming. Deferred taxes that will have to be paid should be considered.
-ZZYP-
You seem not to uderstand the difference between nominal and real bonds andssimply semto be chasing the highest nominal yield you can find. That is up to you: its your money. However, most of us are trying to earn the highest real (after inflation, plus or minus) return we can get for a given level of risk over the long term. So a transitory period where I bonds with relatively high real coupons (fixed component) of north of 3% earn no interest because if a negative inflation adjustment is easily outweighed by the attractive real return over time. Now if you have a bunch of I bonds with a low (sub 1.5%) real coupon (fixed component), I can maybe see a case for turning them in, but most of us would not have bought such bonds in the first place because they are not that attractive an investment after inflation even when the nominal yield is high (periods of higher inflation).

And I think it is fair to say that most of usunderstand how inflation adjusted bonds work. You wouldn't happen to be looking to sell us anything, would you?
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Old 09-12-2009, 01:56 PM   #22
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So a transitory period where I bonds with relatively high real coupons (fixed component) of north of 3% earn no interest because if a negative inflation adjustment is easily outweighed by the attractive real return over time.
Here, Here!!!

I'd never, ever sell an I Bond with a 3+% real rate. Don't care what the near-term inflation adjustment is.
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I agree on high fixed rate I's
Old 09-12-2009, 07:26 PM   #23
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I agree on high fixed rate I's

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Here, Here!!!

I'd never, ever sell an I Bond with a 3+% real rate. Don't care what the near-term inflation adjustment is.
I agree because I too am keeping my I Bonds with high fixed interest, and did not advise anyone different. I just pointed out that a feakish inflation rate adjustment brought even high fixed rate bonds to 6 months of zero interest.

Why freakish, who would have worked through the math example, likely guessed that a 2.78% 6 month CPI change would lower I interest twice as much (or or to 0% if that is higher) to give 6 months of 0% interest rate to everyone I's, even yours.

Future potential is a different story. However, if you "never, ever" cash in that bond, what good is it, other than sort of pretty. The only way that I know of to get that good interest out is to redeem the bond.
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Old 09-12-2009, 07:33 PM   #24
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I'd never, ever sell an I Bond with a 3+% real rate. Don't care what the near-term inflation adjustment is.
Well, I hope you would after 30 years, since they won't earn any more interest after that.

It'll be a sad day for me in 2030 when I have to redeem mine (3.4% fixed).
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An error in my message, corrected $10K, not $10
Old 09-12-2009, 07:46 PM   #25
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An error in my message, corrected $10K, not $10

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[...] Since with current rules you can only purchase $10 per I's per year per person, and I bonds bought now through October earn 0%, why bother now.
[...]
.
Should be:

Since with current rules you can only purchase $10K I's per year per person ($5K paper and $5K direct), and I bonds bought now through October earn 0%, why bother now.
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Old 09-12-2009, 07:55 PM   #26
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However, if you "never, ever" cash in that bond, what good is it, other than sort of pretty. The only way that I know of to get that good interest out is to redeem the bond.
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Well, I hope you would after 30 years, since they won't earn any more interest after that.
I often wonder if literal interpretations like this are honest misunderstandings or are deliberately argumentative.

In either event, after they stop accruing interest they don't really have a 3+% real rate anymore, do they? So even if you TRY to misinterpret my comment by applying a ridiculously literal interpretation, it still makes sense as written.
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3.6% fixed rate? Unlikely
Old 09-12-2009, 08:03 PM   #27
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3.6% fixed rate? Unlikely

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I am not selling my I-bonds with real rates interest rates of between 3.4 to 3.6%, with tax free compounding, until 30 years is up or I die which ever comes first.
According to the Treasury's I Saving Bonds Rates & Terms web page, the highest fixed rate for I bonds was 3.4%, and that was only a two month period in 1998.

The actual rate (composite of fixed + inflation adjustment) was recently as high as 7.99% with 3% fixed (before it dropped to 0 for 6 months).
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Old 09-12-2009, 09:04 PM   #28
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According to the Treasury's I Saving Bonds Rates & Terms web page, the highest fixed rate for I bonds was 3.4%, and that was only a two month period in 1998.

The actual rate (composite of fixed + inflation adjustment) was recently as high as 7.99% with 3% fixed (before it dropped to 0 for 6 months).
Nope I-bonds bought between May and Nov 2000 earned a 3.6% rate. Actually the ones I bought in Aug 2000 earned a slightly higher rate, since I got a 1% cash back from my Discover Card and I got a ~45 day float on the money. . The treasury department stopped allowing the use of credit cards to buy I-bonds and frankly buying them $500 at time was somewhat of pain. In quite buying them when the fixed rate dropped to 3.00% in 2001.

I was just learning about the 4% SWR so I sold tech stocks to buy I-bonds and TIPs with interest rates close to 4% in 1999 and 2000. Probably the best "market timing", I've ever done.
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Old 09-12-2009, 09:17 PM   #29
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According to the Treasury's I Saving Bonds Rates & Terms web page, the highest fixed rate for I bonds was 3.4%, and that was only a two month period in 1998.
Wow, you are off to great start!

Move over Millionaire Mommy, move over *****!

Ha
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Old 09-12-2009, 09:44 PM   #30
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Move over Millionaire Mommy, move over *****!
Ha
It seemed so exciting for a moment a "free" secretary willing to crunch the numbers for me and now several of you guys throwing cold water on the dream.

I'm awake now. Clifp and Co. congratulations on your timing. I get pretty excited when I can buy TIPS at 2.5%+ would love to see Ibond rates like that too.
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Old 09-12-2009, 10:48 PM   #31
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It seemed so exciting for a moment a "free" secretary willing to crunch the numbers for me and now several of you guys throwing cold water on the dream.

I'm awake now. Clifp and Co. congratulations on your timing. I get pretty excited when I can buy TIPS at 2.5%+ would love to see Ibond rates like that too.

LOL Millionaire Mom that brings back fond memories.

Ah but the rest of the story is the "fun" part. You see those TIP bonds I bought, I sold in early 2008 at nice profit. I then proceeded to invest most of the money, in big name name banks stocks like BAC and bought a lot Sallie Mae inflation protected bonds ISM/OSM. Let see the BofA I bought at around $27 I sold recently at $13, and those medium term A rated ISM/OSM bonds I bought for $20 are now worth $12 and like all inflation bonds yielding near 0%.

Hence my initial comment about keeping the Ibonds.
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Old 09-13-2009, 02:02 PM   #32
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I finally put the iBond composite rate formula into a spreadsheet. Here is a plot of the composite rate vs. the inflation rate for various fixed rates.
iBond rate.gif
It may be more productive to view iBond return in real terms. Here is the real iBond rate vs inflation for several fixed rates.
Real iBond rates.gif
Here is the spreadsheet
iBond rates.xls
The formula is here
Individual - I Savings Bonds Rates & Terms
It is interesting that the composite rate is not just fixed + inflation.
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Old 09-13-2009, 06:33 PM   #33
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You asked for advice on when to sell, I can only tell you what I did.
I sold $90K face value (+ int) of I bonds purchased in Dec '05 on Sep. 2nd of this year on
Hi zzyp,

Welcome to the board.

I was also lucky enough to also buy I-Bonds in Oct 2001 and get the 3% + inflation rate. One of the best things I've done, retirement and investment wise,for me.I'm curious, how did you purchase $90k face value in Dec '05?
In 01 the limit was 30k per SS number, so my SO and I each bought the limit?How did you get 90k?
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Old 09-13-2009, 07:01 PM   #34
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Hi zzyp,

Welcome to the board.

I was also lucky enough to also buy I-Bonds in Oct 2001 and get the 3% + inflation rate. One of the best things I've done, retirement and investment wise,for me.I'm curious, how did you purchase $90k face value in Dec '05?
In 01 the limit was 30k per SS number, so my SO and I each bought the limit?How did you get 90k?
Probably had his pet sheep buy some.
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Old 09-13-2009, 07:06 PM   #35
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Probably had his pet sheep buy some.
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How purchase $90K I's in '05, Want $20K now?
Old 09-14-2009, 02:03 PM   #36
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How purchase $90K I's in '05, Want $20K now?

One message said:
"I was also lucky enough to also buy I-Bonds in Oct 2001 and get the 3% + inflation rate. One of the best things I've done, retirement and investment wise,for me.I'm curious, how did you purchase $90k face value in Dec '05?
In 01 the limit was 30k per SS number, so my SO and I each bought the limit?How did you get 90k?"

First, as one query asked, I didn't use my sheep.

The rules with $30K limit allow $120K per couple. $30K limit on on-line purchase, 30K paper bonds at the bank per purchaser's Social Sec.#, thus $60K for me with spouse as co-owner and $60K purchased by my spouse, me as co-owner. That adds up to $120K, but I set up only one on-line treasury account so only did $90K. It is no stretching of the rules, they state on-line limit is apart from paper bond purchase limit.

With the current $5K limit, the limit, using rules above would be $20K per couple. WHYBefore you consider it, look at current I bond rate. Rate will change in November, but any I bond purchase now starts off with 0.0% for the first 6 months before a positive rate. Waiting till Nov. maybe you could start out for 6 mo. with above zero rate. (Icon means crazy. I try not give advice unless asked, I just mean it sounds crazy, in my Humble Opinion)
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Smile Happy to redeem in 30 years
Old 09-14-2009, 02:52 PM   #37
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Smile Happy to redeem in 30 years

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Originally Posted by . . . Yrs to Go
I'd never, ever sell an I Bond with a 3+% real rate. Don't care what the near-term inflation adjustment is.









"Well, I hope you would after 30 years, since they won't earn any more interest after that.

It'll be a sad day for me in 2030 when I have to redeem mine (3.4% fixed)."

Sad, not me, because I am approaching 80, so alive then is better than expected.

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Old 09-14-2009, 04:07 PM   #38
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One message said:
"I was also lucky enough to also buy I-Bonds in Oct 2001 and get the 3% + inflation rate. One of the best things I've done, retirement and investment wise,for me.I'm curious, how did you purchase $90k face value in Dec '05?
In 01 the limit was 30k per SS number, so my SO and I each bought the limit?How did you get 90k?"

First, as one query asked, I didn't use my sheep.

The rules with $30K limit allow $120K per couple. $30K limit on on-line purchase, 30K paper bonds at the bank per purchaser's Social Sec.#, thus $60K for me with spouse as co-owner and $60K purchased by my spouse, me as co-owner. That adds up to $120K, but I set up only one on-line treasury account so only did $90K. It is no stretching of the rules, they state on-line limit is apart from paper bond purchase limit.

With the current $5K limit, the limit, using rules above would be $20K per couple. WHYBefore you consider it, look at current I bond rate. Rate will change in November, but any I bond purchase now starts off with 0.0% for the first 6 months before a positive rate. Waiting till Nov. maybe you could start out for 6 mo. with above zero rate. (Icon means crazy. I try not give advice unless asked, I just mean it sounds crazy, in my Humble Opinion)
I thought the limit was 30k per ss number back then, regardless of how you purchased them and it changed to so much on line and so much in person when they lowered the limits. From the above, I guess I was misinformed.
Thanks for the answer.(wish I had bought more in 01)
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"Real" rates are unreal to me with negative C
Old 09-14-2009, 04:21 PM   #39
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"Real" rates are unreal to me with negative C

I think I now understand the term "real rates", which are suppossed be be good. If so, I should be overjoyed to get an I bond 0% gain over 6 months, because I am getting a higher real rate than if I was receiving an interest rate above 0% on my I Bond. The higher the rate of DEflation, the higher is my real rate of 0%.

To me, "real" rates are hard to understand, and somewhat unreal. Also the math of
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Yes, there was a 3.6% fixed rate, true
Old 09-15-2009, 11:32 AM   #40
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Yes, there was a 3.6% fixed rate, true

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Nope I-bonds bought between May and Nov 2000 earned a 3.6% rate. Actually the ones I bought in Aug 2000 earned a slightly higher rate, since I got a 1% cash back from my Discover Card and I got a ~45 day float on the money. . The treasury department stopped allowing the use of credit cards to buy I-bonds and frankly buying them $500 at time was somewhat of pain. In quite buying them when the fixed rate dropped to 3.00% in 2001.

I was just learning about the 4% SWR so I sold tech stocks to buy I-bonds and TIPs with interest rates close to 4% in 1999 and 2000. Probably the best "market timing", I've ever done.
Sorry for doubting, I overlooked the period of 3.6% interest in looking at the Fixed rate table. I too bought some bonds with a cash-back credit card when that option was available.
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