Useful Links

JPatrick · 11-01-2005, 08:08 AM

November 1, 2005
I BOND EARNINGS RATE 6.73%
The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which will apply for the life of the bond, and the inflation rate. The 6.73 percent earnings rate for I bonds bought from November 2005 through April 2006 will apply for the first six months after their issue. The earnings rate combines the 1.00 percent fixed rate of return with the 5.70 percent annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The CPI-U increased from 193.3 to 198.8 from March to September 2005, a six-month increase of 2.85 percent.

Treasury’s inflation-indexed I bonds are designed to offer all Americans a way to save that protects the purchasing power of their investment by assuring them a real rate of return above inflation. I bonds have features that make them attractive to many investors. They are sold in electronic form in amounts of $25 and above, or in paper form at face value in denominations of $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000, and earn interest for as long as 30 years. I bond earnings are added every month and interest is compounded semiannually. They are state and local income tax exempt, and Federal income tax on I bond earnings can be deferred until the bonds are cashed or they stop earning interest after 30 years. Investors cashing I bonds before five years are subject to a 3-month earnings penalty.

Savers and investors can now open an on-line account to purchase I bonds in electronic form, as well as EE savings bonds and Treasury marketable securities, through the website www.treasurydirect.gov. Account holders can purchase, manage, and redeem such I bonds over the Internet 24 hours a day, seven days a week.

I BOND FIXED RATE 1.00%
Series I, inflation-indexed savings bonds purchased from November 2005 through April 2006 will earn a 1.00 percent fixed rate of return above inflation. The 1.00 percent fixed rate applies for the 30-year life of I bonds purchased during this six-month period.

Nords · 11-01-2005, 09:11 AM

Quote:

Originally Posted by JPatrick

Series I, inflation-indexed savings bonds purchased from November 2005 through April 2006 will earn a 1.00 percent fixed rate of return above inflation. The 1.00 percent fixed rate applies for the 30-year life of I bonds purchased during this six-month period.

Well, that beats the snot out of a 5% five-year CD, but I appreciate the masterful way that they avoided discussing the drop in the fixed rate from 1.2% to 1.0%!

wabmester · 11-01-2005, 09:25 AM

Yeah, 6.73% ain't bad, but I'm shocked that they dropped the fixed rate to 1.0%.

That means i-bonds aren't linked to the 5-year TIPS rate.* *5-year TIPS have a real yield of 1.81%, giving them a nominal yield of 7.51% (!) and making TIPS the much better deal if you plan to hold for 5 years.

justin · 11-01-2005, 09:29 AM

Quote:

Originally Posted by Nords

Well, that beats the snot out of a 5% five-year CD, but I appreciate the masterful way that they avoided discussing the drop in the fixed rate from 1.2% to 1.0%!

I searched everywhere to find the previous rate. Obviously they have hidden it so suckers like me won't realize we're getting a worse (inflation adjusted) deal.

wabmester · 11-01-2005, 09:33 AM

Quote:

Originally Posted by justin

I searched everywhere to find the previous rate.* Obviously they have hidden it so suckers like me won't realize we're getting a worse (inflation adjusted) deal.

Yeah, it's a government conspiracy I tell ya!

Oh, wait....

i-bond rates

justin · 11-01-2005, 09:37 AM

He he...

I admit I only spend a few minutes. It should be easier to find than that.
(I don't ever use the treasury direct web site!!!).

I did sucker someone into posting the link to the chart I wanted by motivating them to make me look like a bobo. Thanks Wab!

thefed · 11-01-2005, 09:38 AM

better off if u bought last month.

6.7% looks great, until you realize that when inflation drops from 5.7%, you've got a crappy fixed rate...

JMHO

wabmester · 11-01-2005, 09:43 AM

Quote:

Originally Posted by thefed

better off if u bought last month.

If you only plan to hold for a year, then the difference is 0.2%. But, did you know that if you buy i-bonds at the end of the month, you get interest for the entire month? So, leave your cash in a 4% MM for the month, and you get back 0.33% and it's still a better deal than buying last week!

Dawg52 · 11-01-2005, 10:26 AM

Quote:

Originally Posted by wab

If you only plan to hold for a year, then the difference is 0.2%.* *But, did you know that if you buy i-bonds at the end of the month, you get interest for the entire month?* *So, leave your cash in a 4% MM for the month, and you get back 0.33% and it's still a better deal than buying last week!

Good Tip!* No pun intended.* *

soupcxan · 11-01-2005, 11:50 AM

For those of us with EE bonds purchased before they went to a locked rate, what is the new rate for EEs?

wabmester · 11-01-2005, 12:01 PM

Quote:

Originally Posted by soupcxan

For those of us with EE bonds purchased before they went to a locked rate, what is the new rate for EEs?

3.2%

justin · 11-01-2005, 12:20 PM

Quote:

Originally Posted by soupcxan

For those of us with EE bonds purchased before they went to a locked rate, what is the new rate for EEs?

3.61% effective 11/1/2005 if you bought your bonds from May 1997 through April 2005. For example, my bonds from 2003 currently have a 3.61% interest rate according to http://www.publicdebt.treas.gov/sav/savmktrt.htm.

retire@40 · 11-01-2005, 12:33 PM

Quote:

Originally Posted by Nords

Well, that beats the snot out of a 5% five-year CD...

Maybe, maybe not.* A 5% 5-year CD will pay 5% for 5 years.

How long is the new I bond rate guaranteed for? 6 Months?* It could drop to 3% or 4% after that.

wabmester · 11-01-2005, 12:44 PM

Quote:

Originally Posted by retire@40

Maybe, maybe not.* A 5% 5-year CD will pay 5% for 5 years.

How long is the new I bond rate guaranteed for? 6 Months?* It could drop to 3% or 4% after that.

I just bought a slug of 5-year TIPS since the i-bond fixed rate didn't look so hot.* *I plan to hold for the entire 5-years, just as I would for a CD.

The yield I got today (after spread + small fee) is 1.79% real, which means about 7.5% nominal.* * I can't get CD's anywhere near that, and even if inflation drops, my downside risk isn't very great (CD's and MM rates would probably drop too).

The new fed chief likes the idea of inflation targeting.* * In the past, he has said that he'd like to see a core inflation rate of 1-2%.* * The core is currently at 2%, so even if you believe that the fed has magic powers to control inflation, I think aggressive action is unlikely in the short-term.

Nords · 11-01-2005, 12:56 PM

Quote:

Originally Posted by wab

so even if you believe that the fed has magic powers to control inflation, I think aggressive action is unlikely in the short-term.

Meanwhile, back at the Fed:
"Bureau of Engraving? Yeah, hey, shut down a couple of those printing presses... no, wait a minnit, maybe we should buy more of them... no wait, that won't work either... uhm, I'm gonna have to call you back."

wabmester · 11-01-2005, 02:26 PM

Quote:

Originally Posted by Nords

"Bureau of Engraving?* Yeah, hey, shut down a couple of those printing presses... no, wait a minnit, maybe we should buy more of them... no wait, that won't work either...* uhm, I'm gonna have to call you back."

I still have trouble getting my head around the printing press thing.

Imagine that people started to worry about our huge federal debt.* *And then tomorrow, Bernanke decided to crank up the printing presses and buy all outstanding treasury debt.* * *All of our debt problems would instantly disappear.* * Theory says that somehow this will lead to inflation, but the actual mechanism isn't clear to me.* * This money would never reach circulation (and the money our government already spent but never had would already be in circulation, so any inflationary effects should already be in the system).

brewer12345 · 11-01-2005, 02:32 PM

Quote:

Originally Posted by wab

I still have trouble getting my head around the printing press thing.

Imagine that people started to worry about our huge federal debt.* *And then tomorrow, Bernanke decided to crank up the printing presses and buy all outstanding treasury debt.* * *All of our debt problems would instantly disappear.* * Theory says that somehow this will lead to inflation, but the actual mechanism isn't clear to me.* * This money would never reach circulation (and the money our government already spent but never had would already be in circulation, so any inflationary effects should already be in the system).

Uhuh, but since an awful lot of our debt is held by foreigners, the value of the USD would get trashed along the way. How does $200 for a barrel of oil sound?