Did You Buy Those I-Bonds?

[JPatrick]

In April that is, cause the fixed rate component went to 0.00% as of May 1. (story below)


New I Bond fixed rate 0.00% - EE 1.40%

Thursday, May 1st, 2008

Categorized as: Savings Bond interest rates • Savings Bond news

The Treasury will lower the fixed interest rates it will pay on Savings Bonds issued during the next six months, it announced this morning.
For Series I Savings Bonds, the fixed base-rate will be nothing at all - 0.00%, down from the previous 1.20%. For Series EE Savings Bonds, the fixed rate will be 1.40%, down from the previous 3.00%.
Yesterday, the 10-year TIPS rate was 1.50%. The 150 basis point difference between the TIPS rate and the I bond rate is the worst the Treasury has offered since I bonds were introduced. Moreover, the 120 basis point drop from the old rate of 1.20% is the largest six-month change in the fixed-rate since I bonds were introduced. Previously the largest six-month change was 100 basis points (from 3.0% on May 2001 to 2.0% on Nov 2001).
Combined with the EE bond rate and the reduction in maximum purchase limits, it's like the Treasury is heaping scorn and ridicule on Savings Bond investors.
During their first six-month rate period, I bonds issued beginning today will have a composite rate of 4.84%. The inflation component, which changes every six months for all I bonds, will be 4.84% for the next six-month rate period.
In their next six-month rate period, older I bonds will pay a variety of rates, depending on issue date, ranging from a low of 5.04% for I bonds with the previous lowest fixed base-rate of 1.00% to a high of 8.53% for I bonds with the highest fixed base-rate of 3.60%.
The new Series EE bond rate, which is set "administratively" but is based on the average rate for 10-year Treasury securities, continues to lag well behind the rates set for EE bonds issued from May 1997 through April 2005. The rate for those bonds is set by formula - 90% of the average 5-year Treasury rate. They will pay 2.74% during their next six-month rate period

[jIMOh]

Help me with definitions and ways each work:

EE bonds
I Bonds
TIPs

EE bonds are Treasuries
I bonds are indexed to inflation and I know little else
TIPs are treasury inflation protected securities and I know little else

I know TIPs pay two components- interest and inflation. Inflation adjustments are based on CPI, I think.

At one point in another thread I commented about making an TIPs or I-bond ladder and some posters mentioned it would be tough (minimum 10 year duration I think I read). Thx for any replies.

[JPatrick]

Quote:

Originally Posted by jIMOh Help me with definitions and ways each work: EE bonds I Bonds TIPs EE bonds are Treasuries I bonds are indexed to inflation and I know little else TIPs are treasury inflation protected securities and I know little else I know TIPs pay two components- interest and inflation. Inflation adjustments are based on CPI, I think. At one point in another thread I commented about making an TIPs or I-bond ladder and some posters mentioned it would be tough (minimum 10 year duration I think I read). Thx for any replies.

You might want to look over this site..It has lots of info so you'll need to surf around a bit.
Site Map: US Savings Bonds

[cute fuzzy bunny]

Wow. I cant imagine anyone buying these at all...

RIDICULOUS!

[ziggy29]

Quote:

Originally Posted by cute fuzzy bunny Wow. I cant imagine anyone buying these at all...

I suspect that's the point. Why offer inflation-protected securities in a high-inflation environment when the market is snapping up Treasuries without said protection for 3-3.5%?

[aida2003]

Quote:

Originally Posted by JPatrick During their first six-month rate period, I bonds issued beginning today will have a composite rate of 4.84%. The inflation component, which changes every six months for all I bonds, will be 4.84% for the next six-month rate period.

I cannot understand how it comes to 4.84% during the 1st 6 months? and then it stays the same rate for the next 6-month period?? Can someone enlighten me on this math, please?
Individual - I Savings Bonds Rates & Terms
says it's only 2.42% inflation rate as of today.

PS. Sorry, I don't know how to post short links :confused:

[JPatrick]

Quote:

Originally Posted by aida2003 I cannot understand how it comes to 4.84% during the 1st 6 months? and then it stays the same rate for the next 6-month period?? Can someone enlighten me on this math, please? Individual - I Savings Bonds Rates & Terms says it's only 2.42% inflation rate as of today. PS. Sorry, I don't know how to post short links :confused:

The 4.84% is the annual rate..It will change again in November and use the new rate for the next six months. The 2.42% is semiannual and what you earn for the 6 month period. With no fixed rate--if inflation gets cut by 50% or so, you won't be doing well.

[CuppaJoe]

Quote:

Originally Posted by JPatrick In April that is, cause the fixed rate component went to 0.00% as of May 1. (story below) New I Bond fixed rate 0.00% - EE 1.40% Thursday, May 1st, 2008 Categorized as: Savings Bond interest rates • Savings Bond news The Treasury will lower the fixed interest rates it will pay on Savings Bonds issued during the next six months, it announced this morning. For Series I Savings Bonds, the fixed base-rate will be nothing at all - 0.00%, down from the previous 1.20%. For Series EE Savings Bonds, the

April, the cruelest month.

I bought one I-bond a couple of years ago, but the interest went straight down from there; will cash it in as soon as it's old enough.

[FinanceDude]

They are a joke............

[Notmuchlonger]

Nope didnt buy them for myself. Just the one for my godson.

[Spanky]

We purchased our IBonds in September 2001. It has returned about 5.8%, annualized.

[plsprius]

Quote:

Originally Posted by CuppaJoe April, the cruelest month. I bought one I-bond a couple of years ago, but the interest went straight down from there; will cash it in as soon as it's old enough.

Those older I-bonds from 1998-2002 are fantastic--I wouldn't cash them in because the fixed interest rate they are paying is the same for the life of the bond (up to 30 years). It's only the new I-bonds for which the fixed rate just went to zero.

Back about 6+ years ago the fixed rate was around 2 to 3+%, which when added to the variable rate (CPI), means that those I-bonds are now yielding 7 to 8+%. Almost too good to be true--which may be why they are no longer available. Since 2003 the fixed rate has been around 1 to 1.6%, which considering the tax and liquidity advantages of I-bonds, isn't too bad.

However, the Govt. also just changed the rules on January 1, 2008 to limit the amount of I-bond purchases per Social Security number (to $5K paper + $5K treasury direct).

Thus, what had been a good deal is no more.

The savings bond web site has all the information:
Individual - I Savings Bonds Rates & Terms

Good luck finding a better deal than those 6+year old I-bonds!

[samclem]

Yep, we bought some of the good ones back in the day--per a very helpful recommendation/tutorial from Mel on the Vanguard Diehards forum.

The I-Bond mechanism is fundamentally flawed. Because you can sell them with relatively little penalty after a short time, people will immediately sell their I-Bonds and purchase new ones if the fixed rate component goes up just a little. Why would the gov want to have an avalanche of people trading in I-Bonds with low rates for I-Bonds with high rates? Plus, all this pent-up potential demand means even a tiny ratchet up in rates would be quickly extinguished by the flood of money from sales of older, lower-rate bonds. Thus, the system nearly assures that the fixed portion of the rates can only spiral downward. Of course, now that it is at zero, I'm not sure what is next.

[soupcxan]

This is awesome. When my bonds from 2001 reset, I'll be earning a risk-free 7.91% that is also tax-deferred!

[ziggy29]

Quote:

Originally Posted by plsprius Those older I-bonds from 1998-2002 are fantastic--I wouldn't cash them in because the fixed interest rate they are paying is the same for the life of the bond (up to 30 years). It's only the new I-bonds for which the fixed rate just went to zero. ... Good luck finding a better deal than those 6+year old I-bonds!

Mine were purchased in 2000 with a 3.4% fixed rate. It will be a sad day when they stop earning interest. If I could turn back the clock, I would have mortgaged myself to the gills to buy as many as I could with yields of 2% and higher...

[Nanita8140]

I bought four I bonds last week with the thinking that the 1.2% fixed rate would most likely go down....never did I think they'd go to 0%. I also bought $10,000 in 2001 which I still have. I don't see that buying any more for the time being is worth it.

[RE2Boys]

I think I stopped buying I Bonds when the fixed rate dropped below 2%, but gosh, it's been a long time since I've even looked at them. I can remember sitting at the computer buying bonds one at a time when I had spare funds using a credit card with a rebate feature. Must have $60K in I bonds (face value) from those years and I haven't valued them within my portfolio allocation in at least 4 years. I may be very pleasantly surprised.


RE2Boys

[copyright1997reloaded]

Quote:

Originally Posted by ziggy29 Mine were purchased in 2000 with a 3.4% fixed rate. It will be a sad day when they stop earning interest. If I could turn back the clock, I would have mortgaged myself to the gills to buy as many as I could with yields of 2% and higher...

Same here - I have a bunch (but I wish more) of I-bonds purchased from those early days of low inflation but most importantly high real (fixed) rate. (1999, 2001, even decent in 2001/2002) However, there were limits to how much you could buy, even in those days. (I seem to remember something like 30k per year electronic and 30k via paper.)

The best part of those purchases (remember late 1999/early 2000) is what people were saying to me when I told them I was buying I-bonds (and putting a large chunk of my mostly equity 401k into the Vanguard Inflation Adjusted Bond Fund in late June 2000) was why I would be so foolish to do so when the market was doing so well....just the confirmation I needed to know that the to-the-moon equities party was just about over...

[CuppaJoe]

I bought a $2,000.00 I-Bond on 12/20/05. The interest rate is listed at 4.08%. It is currently valued at $2,182.00.

[ziggy29]

Quote:

Originally Posted by copyright1997reloaded Same here - I have a bunch (but I wish more) of I-bonds purchased from those early days of low inflation but most importantly high real (fixed) rate. (1999, 2001, even decent in 2001/2002) However, there were limits to how much you could buy, even in those days. (I seem to remember something like 30k per year electronic and 30k via paper.)

Yeah, I think $30,000 per name was the limit. I had enough trouble scraping up $4000, and I just wish I could have afforded a lot more.

This link claims that overall, the bonds I purchased in early 2000 have yielded 6.34% annually since their issue. Not bad for something very safe and tax deferred, eh?

http://www.treasurydirect.gov/indiv/tools/sbermay08.txt