I Bond rate 5/2021

[Sunset]

I think I'm learning something new here.

I bought $10K of I bonds probably in August, I thought I'd get the 3.54% until Nov 1 and then get whatever rate was the new rate.
But now, I'm hearing I'll get the 3.54% for 6 months, and then in Feb get the rate of 7.xx% for 6 months.
And I'll always be behind the new rate by 3 months, but get my full 6 months worth each time.

Have I got that right

 

[Linney]

I bought $10K of I bonds probably in August..... I'm hearing I'll get the 3.54% for 6 months, and then in Feb get the rate of 7.xx% for 6 months. And I'll always be behind the new rate by 3 months, but get my full 6 months worth each time.

Have I got that right

Yes! You will get 3.54% from Aug-Jan, and then 7.12% from Feb-Jul.

If you buy another $10K in January, you will get a full six months of 7.12% from Jan-Jun, then ??(new rate) from Jul-Dec.

Don't forget that you forfeit the last 3 months of interest if you cash them before 5 years. After that there is no penalty. One tactic some people use is to wait until their I bond is at a very low rate, add 3 months, and then cash them out with minimal-to-no impact.

 

[Koolau]

Yes! You will get 3.54% from Aug-Jan, and then 7.12% from Feb-Jul.

If you buy another $10K in January, you will get a full six months of 7.12% from Jan-Jun, then ??(new rate) from Jul-Dec.

Don't forget that you forfeit the last 3 months of interest if you cash them before 5 years. After that there is no penalty. One tactic some people use is to wait until their I bond is at a very low rate, add 3 months, and then cash them out with minimal-to-no impact.

Sounds like a reasonable strategy but my SWAG at this point is it will be a long wait for that "very low rate" that will allow cashing out with "minimal to no impact." No crystal ball, here, just looking at empty store shelves, no TP, gas at $4, 100 ships waiting to be unloaded, etc., etc. I think inflation may be here for a few years - or more. I HOPE I'm wrong so YMMV.

 

[Linney]

....my SWAG at this point is it will be a long wait for that "very low rate" that will allow cashing out with "minimal to no impact." No crystal ball, here, just looking at empty store shelves, no TP, gas at $4, 100 ships waiting to be unloaded, etc., etc. I think inflation may be here for a few years - or more.....

I wouldn't disagree with that SWAG. If IBond rates continue to be high why not continue to hold them and enjoy the higher interest. If/when the rate drops they can be sold at that time. It's a strange kind of win-win, but still a win if you can afford to buy and hold them.

Over the years I built up a ladder of Ibonds so I have a lot of flexibility now. It's like having money spread across deferred IRAs, Roth AND Taxable -- it gives you more knobs to turn to control your income and taxes. I had originally planned to start selling my older Ibonds this year but with these current rates I will hold onto them, buy more in January, and use other funds for living expenses.

 

[wearefinishedworking]

Thank you all, you smart internet people, I just bought $10,000 and will buy another 10k in January. Ditto for DH.

 

[RetiredAt55.5]

At these new rates, kinda puts another spin on the paying off the mortgage early debate.

Granted, it's only $10k per year, or $20k with a spouse, plus buys via tax refunds.

 

[audreyh1]

It doesn't address your point Audrey, but I'd be willing to bet that the author is thinking that a combination of 6 months of the current rate plus 6 months of the higher rate to come will yield more than 6 months of the new rate and 6 months of whatever the rate will be next May. I'm thinking the assumption is inflation will have tamed by next spring and if so the May rate may not match the current rate??

OK I guess that makes sense if you think the next May rate will be lower than the current rate.

 

[Dreamer]

I set up Treasury Direct accounts for DH and myself and bought $10,000.00 each on 10/20/21.

Thanks for this information in this thread.

 

[EA-Sports]

Yes! You will get 3.54% from Aug-Jan, and then 7.12% from Feb-Jul.

If you buy another $10K in January, you will get a full six months of 7.12% from Jan-Jun, then ??(new rate) from Jul-Dec.

Don't forget that you forfeit the last 3 months of interest if you cash them before 5 years. After that there is no penalty. One tactic some people use is to wait until their I bond is at a very low rate, add 3 months, and then cash them out with minimal-to-no impact.

Newbie here..what difference will it make to the scenario above if I buy before or after Nov 1?

 

[Linney]

Newbie here..what difference will it make to the scenario above if I buy before or after Nov 1?

Buy BEFORE Nov 1:
You will get 3.54% from Oct-Mar, and then 7.12% from Apr-Sep. Annual rate of ~5.33% pretty much guaranteed.

Buy AFTER Nov 1:
You will get 7.12% from Nov-Apr, then an TBD rate from May-Oct. Annual rate TBD.

In either scenario you can purchase another 10K IBond next year (2022).

Hope that helps!

 

[jollystomper]

I set up Treasury Direct accounts for DH and myself and bought $10,000.00 each on 10/20/21.

Thanks for this information in this thread.

I just dipped into I Bonds in May, and completely missed that the $10K limit was per person, I just need a separate account for DW . Off to create her account and buy some more...

 

[londo]

Don't forget that you can buy an extra $5k of iBonds by using your tax refund. To make that work, pay an additional $5k over what you think will owe as an estimated payment, due by January 15. Then you'll receive that back as a refund, and use form 8888 to buy the additional $5k of iBonds.

 

[pb4uski]

At these new rates, kinda puts another spin on the paying off the mortgage early debate.

Granted, it's only $10k per year, or $20k with a spouse, plus buys via tax refunds.

So, DW and I can buy $20k on Nov 1 and $20k on Jan 2022 and another $5k with our 2021 tax refund and get 7.12%?

If so, I think I'm in.

Is the $5k limit from a tax return per tax return or per person... IOW can a married couple do $10k from their tax return or only $5k?

Also, worst case... if I buy on Nov 1 at 7.12% and the rate for May 2022 is 0% and I cash out after a year I would end up with 3.56%... (7.12%*0.5 + 0%*.5 - 0%* 3/12)... right?

I bonds earn interest for 30 years unless you cash them first. You can cash them after one year. But if you cash them before five years, you lose the previous three months of interest. (For example, if you cash an I bond after 18 months, you get the first 15 months of interest.)

 

[steelyman]

I just opened a new entity account (for my trust) at Treasury Direct. I had no idea such a thing existed until reading it here (e-r.org strikes again!).

 

[karluk]

Also, worst case... if I buy on Nov 1 at 7.12% and the rate for May 2022 is 0% and I cash out after a year I would end up with 3.56%... (7.12%*0.5 + 0%*.5 - 0%* 3/12)... right?

You are right that the worst case scenario for I-bonds purchased in November is the possibility of getting no return at all except for sixth months at 7.12%. You could then cash them in November, 2022 and get performance roughly equal to a one year CD at 3.56%

However, as a general rule one should never buy I-bonds at the beginning of a month. That's because I-bonds start accumulating interest from the first of whichever month they are purchased. So you should either buy before the end of October or wait until the end of November before making your purchase. Just don't wait until the last business day of the month. I've observed that the Treasury dates my purchases on the next business day after I place my order.

Your worst case scenario for November is also another reason to buy in October. It has a better worst case scenario: Buy in October and cash in early January, 2023, and you get six months of both the current 3.54% and November's 7.12% inflation adjustment. In exchange for a somewhat longer holding period you've guaranteed yourself 12 full months interest that's far higher than is currently avaiable elsewhere.

Purchases in October do have a down side. The best case scenario for October is not as good as waiting until late November - after all we don't yet know the May, 2022 inflation adjustment. It could be higher than 3.54%, and maybe even higher than 7.12%.

 

[Mulligan]

Thank you all, you smart internet people, I just bought $10,000 and will buy another 10k in January. Ditto for DH.

There is a 3 month withholding penalty from withdrawing prior to 5 years….But.. remember, Treasury gives you entire month interest credit if you get in before end of month. So basically your penalty is only a 2 month withhold if bought late in month.

 

[razztazz]

So, may I ask what percentage of your total stash (the money you are using to live on) are most of the people here aiming for as you stock up on I-Bonds? I am currently at about 12%. I know you can't really, really totally protect against inflation (the high/persistent inflation that seems to be what is being discussed here) but there's probably a feasible amount of "flak vest" that can see one through. Do y'all think it needs to be significant (30-40%) or would a more minimal I-Bond allocation be enough?

 

[steelyman]

So, may I ask what percentage of your total stash (the money you are using to live on) are most of the people here aiming for as you stock up on I-Bonds? I am currently at about 12%. I know you can't really, really totally protect against inflation (the high/persistent inflation that seems to be what is being discussed here) but there's probably a feasible amount of "flak vest" that can see one through. Do y'all think it needs to be significant (30-40%) or would a more minimal I-Bond allocation be enough?

I’m aiming for my I bonds to represent one year of a three year “Emergency / Long Term Care” goal (so it’s not money used to live on).

 

[pb4uski]

You are right that the worst case scenario for I-bonds purchased in November is the possibility of getting no return at all except for sixth months at 7.12%. You could then cash them in November, 2022 and get performance roughly equal to a one year CD at 3.56%

However, as a general rule one should never buy I-bonds at the beginning of a month. That's because I-bonds start accumulating interest from the first of whichever month they are purchased. So you should either buy before the end of October or wait until the end of November before making your purchase. Just don't wait until the last business day of the month. I've observed that the Treasury dates my purchases on the next business day after I place my order.

Your worst case scenario for November is also another reason to buy in October. It has a better worst case scenario: Buy in October and cash in early January, 2023, and you get six months of both the current 3.54% and November's 7.12% inflation adjustment. In exchange for a somewhat longer holding period you've guaranteed yourself 12 full months interest that's far higher than is currently avaiable elsewhere.

Purchases in October do have a down side. The best case scenario for October is not as good as waiting until late November - after all we don't yet know the May, 2022 inflation adjustment. It could be higher than 3.54%, and maybe even higher than 7.12%.

I think I get it... if I bought next week and redeem on 1/2/23, since the interest is back to the 10/1/21 that would be 15 months.... if I bought $10,000 I would get $10,539 ($10,000*(1+3.54%/2))*(1+7.12%/2) for an IRR of ~4.59% for 15 months. That sounds pretty good.

And if the rates continued to be attractive I could let it ride.

 

[Koolau]

I wouldn't disagree with that SWAG. If IBond rates continue to be high why not continue to hold them and enjoy the higher interest. If/when the rate drops they can be sold at that time. It's a strange kind of win-win, but still a win if you can afford to buy and hold them.

Over the years I built up a ladder of Ibonds so I have a lot of flexibility now. It's like having money spread across deferred IRAs, Roth AND Taxable -- it gives you more knobs to turn to control your income and taxes. I had originally planned to start selling my older Ibonds this year but with these current rates I will hold onto them, buy more in January, and use other funds for living expenses.

I wish I had a ladder of I-bonds. They have the advantage of letting you sort of "titrate" your taxable gains. Older bonds have more gains, so cause more taxable events while newer purchases can be sold with relatively little taxable income involved. That's great flexibility.

But, in reality, my I-bonds (from early 00s) will be sold ONLY to avoid selling any of my ROTH IRAs. That's how much I love my old I-bonds. Still kicking myself for not buying earlier and more often. BUT at current rates, I'm tempted if I can come up with the loose cash (I hate to cash 401(k) funds to get money to buy I-bonds - but I just might do that!) YMMV

 

[mrfeh]

So, may I ask what percentage of your total stash (the money you are using to live on) are most of the people here aiming for as you stock up on I-Bonds? I am currently at about 12%. I know you can't really, really totally protect against inflation (the high/persistent inflation that seems to be what is being discussed here) but there's probably a feasible amount of "flak vest" that can see one through. Do y'all think it needs to be significant (30-40%) or would a more minimal I-Bond allocation be enough?

We started buying IBonds in 2013. As of today, they are 4% of our portfolio.

Rick Ferri (google him) suggests a retiree have 20% of their fixed income in TIPS.

 

[Jerry1]

Great thread. I think I'm in for $20K and then add to my estimated taxes so I can get an additional $5K.

Question - On a joint return, how is this handled? You just pick one person's account? Or, do they only send you a paper bond?

 

[lucky penny]

Question - On a joint return, how is this handled? You just pick one person's account? Or, do they only send you a paper bond?

As I mentioned earlier, for tax refunds they only send you paper bonds. And based on past experience, they tend to send you many bonds in small denominations, rather than the fewest number of bonds in larger denominations.

 

[Jerry1]

As I mentioned earlier, for tax refunds they only send you paper bonds. And based on past experience, they tend to send you many bonds in small denominations, rather than the fewest number of bonds in larger denominations.

Thanks. I do recall that now. Sorry for the repeat.

 

[Sunset]

Anybody self-employed as a sole proprietorship folks open a treasury direct account and fund it for themselves AND their business ?

Basically being able to double the $10K annual limit.