I'm going to make a plug for iBonds here. This April is the last month you can get the current offering of a 2.83% rate.
Currently the iBond is offering a fixed rate of 0.5% which is much higher than it the recent past when it was mostly 0% and occasionally 0.1% or 0.2% and and just once prior to this 6 months it was 0.3%. You have to go 10 years back to find a higher fixed rate.
I think this fixed rate will drop considerably next month due to recent CPI being quite low - 0% in fact for 3 of the past 6 months, and if you look at the patterns in the past with iBonds, the fixed rate tends to drop to 0% or close when inflation is low. You can see the historical fixed rates offered in this chart. https://www.treasurydirect.gov/indiv/research/indepth/ibonds/IBondRateChart.pdf
I am planning to buy some - I did last fall replacing some iBonds paying 0% fixed rate, and this time I'll replace some iBonds paying a 0.2% fixed rate.
Find of the day. Suncoast Credit Union special... 3.5% on a 5 year Jumbo CD... $100k minimum... 180 day EWP.... partial withdrawals allowed... $100k minimum.... NCUA.
So if you purchased this month, you would get 2.83% for six months, followed by 1.90% for six months, and keep the 0.5% fixed rate until maturity.Based on September and March CPI-U numbers, the inflation component for the May I Bond should be 1.40% (annualized). This number is added on to the I Bond fixed rate (currently 0.50%) to derive the I Bond composite rate. The current I Bond inflation component is 2.32%.
Due to this lower inflation component (1.40%), I Bonds purchased this month won’t be a good deal compared to top 1-year CDs. However, there is another reason to consider an I Bond purchase for this month. The current I Bond fixed rate of 0.50% is the highest it has been since 2009. Based on how Treasury yields have declined since November, the I Bond fixed rate may decline in May. So if you are looking at I Bonds as a long-term investment, you may want to purchase in April.
I Bond Rates of Return for April 2019 Purchase
If you buy I Bonds before May, your I Bond will have a fixed rate of 0.50% and an inflation component of 2.32%. This results in a composite rate of 2.83%. This rate will remain in effect for six months until October 1, 2019. The I Bond inflation component that the Treasury announces in May will take effect for your I Bond (purchased this month) in October. That will remain in effect for six months. Since we know the May I Bond inflation component, we can compute the I Bond return for the next year for I Bonds purchased in April.
https://www.depositaccounts.com/blog/inflation-treasury-series-i-savings-bonds/
Yesterday March CPU announcement, so inflation component is known for next six months for iBonds.
Depositaccounts.com article spells it out:
So if you purchased this month, you would get 2.83% for six months, followed by 1.90% for six months, and keep the 0.5% fixed rate until maturity.
We won’t know until May 1 what the new fixed rate will be.
I’m “upgrading” (i.e. replacing) some IBonds I bought 5 years ago with an only 0.2% fixed rate.
There have been periods where IBonds yielded quite a bit more than cash or short-term CDs, other periods where they have fallen behind. So you never know long-term. You don’t have to pay taxes on the interest earned until you redeem the IBonds or they mature, so you get tax deferred compounding of the interest.
To purchase IBonds you create an account at treasurydirect.gov and link it to a bank account.
Yes, from what I have bought in the past this should work, if your bank account is verified.One more question on iBond purchases via Treasury Direct. Does a date of the 25th seem reasonable - that should give me enough time (business days) if there was an ACH issue?
I know doing the purchase as late as possible in the month is a good strategy (as it captures the interest for the month), especially since the money is coming from a money market fund yielding 2.50%. Treasury Direct allows a date to be specified on the transaction. Given I haven't used this financial institution as a source for Treasury Direct (before), I would like to allow some time to allow for any issue that might arise. Does a date of the 25th seem reasonable - that should give me enough time (business days) if there was an ACH issue?
Why don't you do a small portion of what you're considering purchasing right now (maybe 1 bond worth) to get the link all set up, then do the rest later in the month as you contemplate?
If you're considering purchasing on the order of $10,000, for example, you're sacrificing less than $10 from your 2.5% money market account by moving the money now versus 2 weeks from now.
Have you been paying taxes on the interest annually or will you be hit with a big tax bill when you liquidate your older bonds?
Below is an estimated annualized return for I Bond redemption from April 1, 2020 to July 1, 2020. It is assumed you will buy the I Bond on April 30, 2019 which gives you almost an extra month of interest. This effectively reduces the 3-month penalty to 2 months.
2.06% - redeem on 4/1/20, 6mo of 2.83%, 3mo of 1.90%, and 3mo of 0% (penalty)
2.05% - redeem on 5/1/20, 6mo of 2.83%, 4mo of 1.90%, and 3mo of 0% (penalty)
2.04% - redeem on 6/1/20, 6mo of 2.83%, 5mo of 1.90%, and 3mo of 0% (penalty)
2.03% - redeem on 7/1/20, 6mo of 2.83%, 6mo of 1.90%, and 3mo of 0% (penalty)
1) No state taxes on savings bond interest.So many years ago I looked into I-Bonds but never really found the appeal, however, based on audrey's post it seems like it might be a good buy this month. Currently I have my 'liquid savings' in a MM account earning approx 2.5% waiting for a good buying opportunity if the stock market dips. I think I can part with $10k and put it into the I-Bonds to buy it as a gift for college education for my kid (in about 6yrs). It says no taxes if you use it for higher education. Does that sound like a good decision? Also, must I use my kid's SS# to purchase and whatever SS# you purchase it with is the only person who can cash them?
EDIT: Found this from the depositaccounts article:
So sounds like the one yr return from the MM rate is better than the I-Bond's? Am I missing something?
The thing is, you know what a money market fund is paying NOW. You don’t know what it will be paying 6 months from now, or 1 year from now, or 5 years from now.EDIT: Found this from the depositaccounts article:
So sounds like the one yr return from the MM rate is better than the I-Bond's? Am I missing something?
we just did a 3% one-year CD with UBS
Hi Bighitter. I tried finding cd rates on ubs website but no luck. I am interested in opening a cd at this rate. Thanks for any information you can provide as to where I can find this rate. Thank you!
I just called their 1-800 number and looks like I need to go through my financial advisor ( I don’t have one) to get this promotional rate.