The I Bond Thread

[pb4uski]

+1... so 2021 limit for me + 2022 limit or me + 2023 & 2024 limits for me in DW's gift box = $40k... * 2 = $80k, +$5k from tax refund = $85k placed since Oct 2021.

All will earn 7.12% annualized for first 6 months + ~8% for second six months + who knows after that. Sweet.

 

[Gearhead Jim]

Trying to buy more IBonds now.
DW and I both bought our individual $10k each in January, and $5k joint from our IRS refund in March.

If we want more, the two possibilities are to create a revocable living trust and have the trust make the purchase; or buy "gift" bonds for each other to be "delivered" when inflation drops enough that we don't want to buy more IBonds. The downside is that if inflation stays high, we will have to decide whether to buy more bonds each year or gift them to each other. Can't do both.

Apparently, we could create two trusts (one for each of us) and buy $10k/yr in each of them. The downside is the effort and possible expense of creating the trusts.

I'd be interested in further comparisons. And comments about the advisability of using IBonds in place of CDs, for some of our "bond" allocation.


Thanks.

 

[Mulligan]

I Bond rate 11/2021

Trying to buy more IBonds now.
DW and I both bought our individual $10k each in January, and $5k joint from our IRS refund in March.

If we want more, the two possibilities are to create a revocable living trust and have the trust make the purchase; or buy "gift" bonds for each other to be "delivered" when inflation drops enough that we don't want to buy more IBonds. The downside is that if inflation stays high, we will have to decide whether to buy more bonds each year or gift them to each other. Can't do both.

Apparently, we could create two trusts (one for each of us) and buy $10k/yr in each of them. The downside is the effort and possible expense of creating the trusts.

I'd be interested in further comparisons. And comments about the advisability of using IBonds in place of CDs, for some of our "bond" allocation.


Thanks.

Here is what IBonds have done the past 15 years. Note the few and low sporadic fixed component add on a few times over the years in this time period.
The added thought is IBonds can be viewed as a 30 year hold or a one year hold. So if CDs start paying more than inflation one can move money. Also IBond interest is deferrable and state income tax free if applicable.

http://kirklindstrom.com/Articles/I_Bond_Rate_History.html

 

[ivinsfan]

Here is what IBonds have done the past 15 years. Note the few and low sporadic fixed component add on a few times over the years in this time period.
The added thought is IBonds can be viewed as a 30 year hold or a one year hold. So if CDs start paying more than inflation one can move money. Also IBond interest is deferrable and state income tax free if applicable.

Historical I Bond Rates

That isn't how it works, the fixed rate stays constant with the life of the bond, that chart means nothing. If you bought at that 1.20 your return would the 1.20 plus the inflation index. Actually the zero fixed rate ATM is the only argument to delay buying until the next rate is published.



You will be penalized if you cash in at one year..

 

[pb4uski]

.... You will be penalized if you cash in at one year..

True, but don't let that 3-month early redemption penalty disuade you. Even after the penalty you will be ahead of a 1 year CD. Current rate is 7.12%... expected reset rate is ~8%... so if you buy $10k now and cash out in a year and one day, you'll get ~$10,550 in a year and a day... a 5.5% yield and much, much better than any 1-year CD on the planet.

$10,550 =(10000*(1+7.12%)^(6/12))*(1+8%)^((6-3)/12)

 

[simple girl]

I would have never known about gifting ibonds to your spouse if it weren't for this thread. I'm closing out my measely 9 month .85% CD that I just opened a month ago and will trade it for $20K in ibonds for us.

Thanks everyone!

 

[ivinsfan]

True, but don't let that 3-month early redemption penalty disuade you. Even after the penalty you will be ahead of a 1 year CD. Current rate is 7.12%... expected reset rate is ~8%... so if you buy $10k now and cash out in a year and one day, you'll get ~$10,550 in a year and a day... a 5.5% yield and much, much better than any 1-year CD on the planet.

$10,550 =(10000*(1+7.12%)^(6/12))*(1+8%)^((6-3)/12)

This is true just pointing out the way it works. Anyone have any guesses to what the fixed rate might be on the next adjustment?

 

[pb4uski]

Not sure what you mean by the fixed rate.

If recent history is true the base rate will be 0% for a long time to come... it has been zero since May 1, 2020 and has not exceeded 1% since November 2, 2008.

From what I am reading the six-month semi-annual inflation rate will be about 4% so the earnings rate for the period May 1-Oct 31, 2022 will be about 8% and all of it will be inflation.

 

[ivinsfan]

Not sure what you mean by the fixed rate.

If recent history is true the base rate will be 0% for a long time to come... it has been zero since May 1, 2020 and has not exceeded 1% since November 2, 2008.

From what I am reading the six-month semi-annual inflation rate will be about 4% so the earnings rate for the period May 1-Oct 31, 2022 will be about 8% and all of it will be inflation.

base rate or the rate that will follow the bond for the entire 30 years...are we coming to the time where the base will start rising...that's the 64 dollar question...

 

[pb4uski]

Ah, I see. Given that even at 0% it's the best game in town why would they increase it?

 

[ivinsfan]

Ah, I see. Given that even at 0% it's the best game in town why would they increase it?

So the actual return on the bond is called the composite rate, and the fixed rate is the lifetime interest rate on the bond. Treasury direct simply says the fixed rate is "determined by the Treasury". So I guess it's whatever number they pick...here I thought they used some fancy formula that would benefit the bond buyers in rising rate periods.

 

[Mulligan]

I Bond rate 11/2021

That isn't how it works, the fixed rate stays constant with the life of the bond, that chart means nothing. If you bought at that 1.20 your return would the 1.20 plus the inflation index. Actually the zero fixed rate ATM is the only argument to delay buying until the next rate is published.



You will be penalized if you cash in at one year..

I know all that. I assume you did too. I was just giving you historical info and what yield they were being offered at the past 15 years. Everything else is up to you to interpret however you wanted to.

 

[Mulligan]

So the actual return on the bond is called the composite rate, and the fixed rate is the lifetime interest rate on the bond. Treasury direct simply says the fixed rate is "determined by the Treasury". So I guess it's whatever number they pick...here I thought they used some fancy formula that would benefit the bond buyers in rising rate periods.

No you are correct there is no formula whatsoever for the fixed rate. Or at very minimum nothing they will publicly disclose.

 

[ivinsfan]

I know all that. I assume you did too. I was just giving you historical info and what yield they were being offered at the past 15 years. Everything else is up to you to interpret however you wanted to.

There is not a lot to interpret they are a pretty unusual product in that one part stays the same and the other can vary wildly. I guess we were trying to say the same thing...but one thing we do know is if we buy the "fixed" at zero that's where it will stay for 30 years.


It would have been interesting if they would listed the actual cumulative rate of return for each year. And if they would have gone back to the beginning of I bonds there would have been a lot higher fixed rates on the chart.

 

[Mulligan]

There is not a lot to interpret they are a pretty unusual product in that one part stays the same and the other can vary wildly. I guess we were trying to say the same thing...but one thing we do know is if we buy the "fixed" at zero that's where it will stay for 30 years.


It would have been interesting if they would listed the actual cumulative rate of return for each year. And if they would have gone back to the beginning of I bonds there would have been a lot higher fixed rates on the chart.

I just meant the list in relative context of historical entry points to compare to. And to show the sporadic if not extremely rare fixed component add on. I had some a dozen years or so ago and then they got so low ( I had no fixed component add on) I just sold them all. May eventually do the same this go around in time. I have an online friend who bought around turn of century with 3% fixed, so he is presently enjoying 10.14% this 6 month cycle.

 

[daylatedollarshort]

I just meant the list in relative context of historical entry points to compare to. And to show the sporadic if not extremely rare fixed component add on. I had some a dozen years or so ago and then they got so low ( I had no fixed component add on) I just sold them all. May eventually do the same this go around in time. I have an online friend who bought around turn of century with 3% fixed, so he is presently enjoying 10.14% this 6 month cycle.

I'm enjoying my TIPS right now, too. I have TIPS at 0% to over 2% rates making 7.9% to over 9% now with the inflation factor added in. I'm hoping those kinds of rates become available at auction again this year once the Fed raises rates. There is no limit with TIPS on how much you can buy.

 

[ivinsfan]

I just meant the list in relative context of historical entry points to compare to. And to show the sporadic if not extremely rare fixed component add on. I had some a dozen years or so ago and then they got so low ( I had no fixed component add on) I just sold them all. May eventually do the same this go around in time. I have an online friend who bought around turn of century with 3% fixed, so he is presently enjoying 10.14% this 6 month cycle.

Yep I bought a bunch in 01, with my share of Moms house sale money. I think limits were higher back then

 

[calmloki]

Want to get in on the gifting game as well - went to TDirect and started buying a $10k I-bond, but don't want to screw up. In the "add new registration" area I can check "this is a gift", but do I put me as the sole or primary owner? Is my giftee the first registrant? Or is my giftee the secondary registrant and beneficiary?

We've already bought the bonds back in November of last year and two more in January of this year, so we can only buy gifts for each other for next year, 2023 and maybe gifts for 2024, right?

 

[Helen]

I assume for a couple to gift each other $10k the money would have to come out of two separate accounts. Right now, I only have one account set up to fund both of our I-bonds.

 

[Gumby]

Want to get in on the gifting game as well - went to TDirect and started buying a $10k I-bond, but don't want to screw up. In the "add new registration" area I can check "this is a gift", but do I put me as the sole or primary owner? Is my giftee the first registrant? Or is my giftee the secondary registrant and beneficiary?

We've already bought the bonds back in November of last year and two more in January of this year, so we can only buy gifts for each other for next year, 2023 and maybe gifts for 2024, right?

For the gift bonds, the registrant is the recipient. That is, when I am buying gift bonds in my account, I put my wife as registrant and vice versa.

I assume for a couple to gift each other $10k the money would have to come out of two separate accounts. Right now, I only have one account set up to fund both of our I-bonds.

And, yes, you need two separate accounts, one for you and one for her.

 

[calmloki]

I assume for a couple to gift each other $10k the money would have to come out of two separate accounts. Right now, I only have one account set up to fund both of our I-bonds.

Thank you for this additional wrinkle on gifting. We bought our individual bonds from one joint account but each have our own TD accounts, hopefully that didn't cause a problem. Thus far no comments from TD.

 

[Linney]

I assume for a couple to gift each other $10k the money would have to come out of two separate accounts. Right now, I only have one account set up to fund both of our I-bonds.

And, yes, you need two separate accounts, one for you and one for her.

To clarify:

You need 2 separate Treasury Direct accounts, one for each person who owns the I-bonds.

You can use 1 account to fund the I-bond purchases for both people. I have used a joint checking account to fund the I-bond purchases for both my spouse and I for years now, no problems whatsoever in doing this.

 

[Linney]

You can use 1 account to fund the I-bond purchases for both people. I have used a joint checking account to fund the I-bond purchases for both my spouse and I for years now, no problems whatsoever in doing this.

I should add that it works the same for gifting. As soon as I purchased the gift for my husband, the funds were withdrawn from our joint checking account and held in the gift box at Treasury Direct. And as soon as he purchased the gift I-bond for me, the funds were likewise withdrawn from our joint account and held in the gift box at TD.

So no special "wrinkles" to worry about w.r.t. the account used to fund gift Ibond purchases.

 

[pb4uski]

.... You can use 1 account to fund the I-bond purchases for both people. I have used a joint checking account to fund the I-bond purchases for both my spouse and I for years now, no problems whatsoever in doing this.

+1 We just use our joint online savings account at Discover Bank.

However, I recently set up TD accounts for my aunt and uncle with banking info from their Navy Federal savings account and did a trial purchase and they received the folowing:

Dear [name],

We're sorry, but your purchase request or reinvestment IAAAA was canceled.
While trying to collect payment from your bank, they returned our debit.
Please check the Investor InBox section of your TreasuryDirect account
for more detailed information.

Thank you for using TreasuryDirect.

If I look at their bank info on Treasury Direct, has all the info that we input to set it up but also says at the bottom "Return Code: R20 - Non-Transaction Account". Any idea why the purchase was rejected? My uncle is going to talk with Navy Federal tomorrow and see if they know why.

 

[RetiredAndLovingIt]

+1 We just use our joint online savings account at Discover Bank.

However, I recently set up TD accounts for my aunt and uncle with banking info from their Navy Federal savings account and did a trial purchase and they received the folowing:



If I look at their bank info on Treasury Direct, has all the info that we input to set it up but also says at the bottom "Return Code: R20 - Non-Transaction Account". Any idea why the purchase was rejected? My uncle is going to talk with Navy Federal tomorrow and see if they know why.

It's on Navys end. You need to call Navy and open a free checking account with them, they don't allow ach from savings account. Luckily I called them first when I was setting up my Treasury direct transaction.