The I Bond Thread

[Mulligan]

Is it worth buying Ibonds with a fixed rate of 1.3%?

Im committed to keeping a core of IBonds. And having 1.3% fixed which is an over 15 year high is better than 0% fixed. If I am fortunate, IBonds will be my worst performing investing asset the next 10 years.

 

[Chuckanut]

Im committed to keeping a core of IBonds. And having 1.3% fixed which is an over 15 year high is better than 0% fixed. If I am fortunate, IBonds will be my worst performing investing asset the next 10 years.

I feel the same. I hope my inflation hedges are like my fire insurance - overall a waste of money.

They remind me of that line from the Abba song "Waterloo" - I feel like I win when I lose.

 

[jj]

Transferred our paper ibonds to TreasuryDirect only took a couple weeks for them to convert was expecting a lot longer.

Amazing. It took 16 weeks when I converted paper bonds from our tax return last year. Not that they can be sold in their first 12 months anyway, so it didn't really matter.

We are also building a stash of higher fixed-rate i bonds for the long term. 1.2% fixed is our previous highest rate. If inflation is very low over the next 30 years I shall be delighted and view it as an insurance policy, as Chuckanut says. The lower fixed-rate bonds will be the first to be cashed as and when extra income is required.

Our gift box purchases are now stretching to 2030! We won't need that money before - I view them much as a 7-year CD that can't be broken before maturity.

In my opinion, inflation is the retiree's worst enemy.

 

[ychuck46]

Amazing. It took 16 weeks when I converted paper bonds from our tax return last year. Not that they can be sold in their first 12 months anyway, so it didn't really matter..

That has been my experience over the last few years of converting older paper bonds that are expiring, anywhere from 12-16 weeks. Also, when I-bonds are in low interest paying times like now I have started putting money into T-bills for anywhere from 8-13 week increments. I receive more interest and I can still put the monies into I-bonds when those expire if I feel they are better, or just do more T-bills.

 

[Chuckanut]

This is probably old news to most of you folks, but I just discovered it so I will share it with the other ignorant person who follows this thread:

Can I withhold taxes on I bonds?

For future I bond cash outs, it is possible to withhold taxes, much the way taxes are withheld from your paycheck. On the TreasuryDirect website, click on “Manage Direct” and then “Update my personal information.” From there, you can set a voluntary default withholding rate up to 50%, which will be used on all future cash outs.

 

[Free bird]

Partial ibond redemption

Can a $5k ibond purchased on 10/2011 be cashed out where you redeem the original principle but leave the earned interest & avoid a taxable event?

 

[Gumby]

Can a $5k ibond purchased on 10/2011 be cashed out where you redeem the original principle but leave the earned interest & avoid a taxable event?

You can cash out less than the whole amount, but I believe that the taxes apply pro rata. So if you have a $10,000 bond with $2000 in accrued interest and you cash in $10,000, you will be getting $8333 in return of principal and $1667 in taxable interest.

 

[Mulligan]

Can a $5k ibond purchased on 10/2011 be cashed out where you redeem the original principle but leave the earned interest & avoid a taxable event?

It is my understanding and memory that you will owe a pro rated amount on the interest withdrawn. No deferrals allowed on monies redeemed.

 

[BlueberryPie]

The taxes will absolutely be prorated to the amount you cash out

 

[Chuckanut]

Given what I know today I have decided to buy another Ibond. I think it’s likely the 1.3% fixed rate will not last past April, and is even less likely it will last the year.

I may be wrong, but this is one bond that I can call at anytime after one year.

 

[audreyh1]

Given what I know today I have decided to buy another Ibond. I think it’s likely the 1.3% fixed rate will not last past April, and is even less likely is will last the year.

I may be wrong, but this is one bond that I can call at anytime after one year.

Based on CPI reports so far TIPSWatch blog thinks it could go higher. You don’t have to make a decision until April. https://tipswatch.com/2024/02/13/u-s-inflation-rose-0-3-in-january-higher-than-expectations/

TIPSWatch updates outlook after every CPI report.

 

[BlueberryPie]

Based on 5henubets so far TIPSWatch blog thinks it could go higher. You don’t have to make a decision until April. https://tipswatch.com/2024/02/13/u-s-inflation-rose-0-3-in-january-higher-than-expectations/

TIPSWatch updates outlook after every CPI report.

I don't see where it says the fixed % of iBonds could go over 1.3%
You're right, you don't need to make a de sion till April, at that time the variable percentage will basically be known, but we will all be guessing on the fixed % until it's too late to decide you preferred 1.3%. The fixed rate is somewhat indexed to TIPS yields which have been pretty good but not as good as the peak in last October, so my not very educated guess is that they're going to be a bit lower

For what it's worth I've been buying at 1.3% bird in hand an all that...

If the May rate is amazing, I'll figure something out but my I inds are my emergency fund so I need to make sure most of th m are liquid at any given time.

 

[Gumby]

You can buy before about April 26th and still get the 1.3% fixed. You'll know the variable rate on April 10th when the March CPI is released (but that variable rate won't start for you until October 1, if you buy in April). Until then, you'll get the current composite rate of 5.27%

 

[BlueberryPie]

https://tipswatch.com/2024/02/26/lets-check-in-on-the-i-bonds-next-fixed-rate/ has a guess that the fixed rate will hold around 1.3%. nobody knows for sure, but his guesses and methodology have been pretty good guesses on the past.

 

[audreyh1]

I don't see where it says the fixed % of iBonds could go over 1.3%
You're right, you don't need to make a de sion till April, at that time the variable percentage will basically be known, but we will all be guessing on the fixed % until it's too late to decide you preferred 1.3%. The fixed rate is somewhat indexed to TIPS yields which have been pretty good but not as good as the peak in last October, so my not very educated guess is that they're going to be a bit lower

For what it's worth I've been buying at 1.3% bird in hand an all that...

If the May rate is amazing, I'll figure something out but my I inds are my emergency fund so I need to make sure most of th m are liquid at any given time.

OK I see now his reference to 2% was the combined rate.

Well just stay tuned after each CPI release.

I already bought this year’s allotment and that’s probably it for me.

 

[Exit 2024]

Following up on discussion about negative/zero inflation rate starting in May, we already in the positive territory with January non-seasonally adjusted inflation of +0.54%, and 4 months overall at +0.2%, both are expected and my prediction that total six months inflation component will be close to 1.2-1.5% and Treasury again will offer non-zero fixed rate for next 6 months.

February CPI-U is posted and total change for 5 months is 0.82%.
I expect March to come in line with January and February,
still stand by my previous prediction of total 6 months inflation to amount to 1.2-1.5% and non-zero fixed rate starting May 1, 2024.

 

[Chuckanut]

Excluding volatile food and energy categories, so-called core prices rose 3.8% from a year earlier. Of particular interest to investors and economists who care mostly about recent trends, the increase in core prices was 0.4% over a one-month period. That was above economists’ expectations for a 0.3% gain. It matched the increases of the previous two months, which had also topped forecasts.

We have the latest inflation rate numbers before the Ibond rates are be reset. I continue to believe that getting the inflation rate to 2% is going to take a lot longer than many people have anticipated. In the the past 6 months the Feds have added a cool trillion dollars to the deficit. That has to come out of somebody’s pocket. I hope I am wrong.

The fixed rate of 1.3% may need a boost.

 

[audreyh1]

Clearly we seem stuck at 3.5% inflation for a while. I think these first 4 months of the year have higher inflation pressures in general.

TIPSwatch sees new variable rate at 2.96%. Add that to your current fixed rate for the next go round. https://tipswatch.com/2024/04/10/march-inflation-sets-i-bonds-new-variable-rate-at-2-96/

 

[Chuckanut]

Here’s the TipsWatch take on where Ibonds will be in May.

I Bond purchases through the end of April carry a permanent fixed rate of 1.3% and a variable rate of 3.94%, resulting in an annualized composite rate of 5.27% for a full six months. At the May 1 reset, that variable rate will fall to 2.96% for I Bonds purchased in May to October, and then eventually for all I Bonds after six months of the 5.27% rate.

The I Bond’s fixed rate, which is permanent through its potential 30-year term, will also be reset on May 1. It appears likely, at this point, that the new fixed rate could fall into the 1.2% to 1.3% range

Note: TipsWatch says he will will publish a more detailed look at Ibonds and TIPS this Sunday.

 

[BlueberryPie]

If you're going to buy this year, you might as well buy in April and lock the higher 5.27 rate for 6 months.
Based on this article it's unlikely the fixed rate will be higher than 1.3% but we will only know for sure when it's too late to wish you bought in April.
I "upgraded" all my 0% fixed rates in the last 6 months, so I'm not buying more iBonds until those become liquid, it's a lot of cash to be tied for a year. At least the interest rate still beats my HYSA rate today.

 

[Chuckanut]

Here’s one person’s take on the May Ibond reset;


https://youtu.be/g1mVtOxYEHE?si=KnSw4y2isBHXBeKk

Note: recorded before 4/10.

 

[BlueberryPie]

Yeah I saw this a few days ago. Good video, but she basically lifted the theory of how it's calculated from the guy at tipswatch.com, they may have have done additional backtesting but the basic formula is not something she came up with.

 

[Jerry1]

From CNBC:

Series I bonds, an inflation-protected and nearly risk-free asset, will pay 4.28% through October 2024, the U.S. Department of the Treasury announced Tuesday.

 

[jldavid47]

The 4.28% rate is for new purchases - 1.30% fixed rate plus 2.98% variable rate.

 

[foxfirev5]

I went all in for this year in January. Hopefully the 1.3% fixed will hold for next January. In any event I'm still a buyer. As a retiree it's the most basic form of insurance.