I Bond rate 5/2021

[steelyman]

Composite rate = 3.54%
Fixed rate = 0.00%
Inflation rate = 1.77%

https://www.treasurydirect.gov/indiv...esandterms.htm

[njhowie]

We have a thread on this from a few weeks ago. Most folks are very happy/excited about the new rate.

I opened a couple of new Treasury Direct accounts specifically to take advantage of this, and the expectation that the inflation component will be really good for the next couple years. Then the interest rate component will move higher when Powell has had enough inflation or economic forces push him. In any case, compared to what the options are for risk free return at this time, the I Bonds appear to be the way to go.

[Montecfo]

for small amounts of cash, yes .

[steelyman]

Quote:

Originally Posted by njhowie We have a thread on this from a few weeks ago. Most folks are very happy/excited about the new rate.

That’s right, it was/is an interesting read. The projection was right on target too!

I’ll hold off until November and see what the inflation reports say (and interest rates). It’s been a few years since I added to my I bonds.

[audreyh1]

It’s great for my existing IBonds.

[USGrant1962]

Hmm. I kind of expected the fixed rate to be above zero based on recent bond rates. I have plenty of zero-fixed-rate iBonds. Need to decide if it is worth buying any more, but they are paying better than most nominal government bonds.

[njhowie]

Keep in mind that interest from I Bonds is free from state taxes.

[Retireby45ish]

Quote:

Originally Posted by steelyman Composite rate = 3.54% Fixed rate = 0.00% Inflation rate = 1.77% https://www.treasurydirect.gov/indiv...esandterms.htm

A few questions from an ibond newbie:

1. The rate is 3.54% if nothing happens with inflation?
2. How much can someone deposit?
3. How do you invest? Fidelity or similar?!
4. How much can you invest?
5. Are you locked in at all? X years?
6. Maybe someone can run through an example for me…theirs wasn’t very clear.

I must be missing something or this seems too good to be true.

Thanks

[Golden sunsets]

We are fortunate to have a slug from the early 00's with a 1% fixed component, so this new combined rate for the next 6 months is very welcome. But I also recall a number of periods where the inflation component was 0, so I'm less impressed by just one 6 mo period with a 4.6% rate. We have never withdrawn any funds from our holdings and would be unlikely to do so with any new purchases, so I can't see us adding to the portfolio. Additions are now limited by year as well, so it would be only small deployments of new funds.

[steelyman]

Quote:

Originally Posted by Retireby45ish A few questions from an ibond newbie: 1. The rate is 3.54% if nothing happens with inflation? 2. How much can someone deposit? 3. How do you invest? Fidelity or similar?! 4. How much can you invest? 5. Are you locked in at all? X years? 6. Maybe someone can run through an example for me…theirs wasn’t very clear. I must be missing something or this seems too good to be true. Thanks

There’s a FAQ on that page that answers common good questions like these as well as links to pages with more information. I’ve always been confused by their example of how the composite rate is calculated but apart from that it’s straightforward.

Key takeaways for me are: a) max $10,000 per calendar year and b) you’ll want to set up a Treasury Direct account (easy to do) linked to your bank account.

[erkevin]

OK, I need some explanation on the interest I received this week. I have a 10k Ibond issued 11/1/2020 and the stated rate is 3.54%. However, after the six months, i only had $40 added in interest (.4%). What am I missing?

[audreyh1]

3 months interest penalty is not accrued to your iBond until the 5 year period passes?

[erkevin]

I saw that in the FAQ- you are correct. But even factoring that (half of interest not showing) in, my rate would only then be .8%

[audreyh1]

The iBond inflation rate from 11/1/20 was 0.84% for 6 months and fixed rate 0.

The 3.54% rate starts this month, and that is the annualized rate. You’ll actually be getting 1.77% over the next six months.

[steelyman]

Quote:

Originally Posted by erkevin I saw that in the FAQ- you are correct. But even factoring that (half of interest not showing) in, my rate would only then be .8%

The inflation rate for 11/1/20 is listed in the table as 0.84%.

[ADDED] (Last two posts crossed in the ether)

[erkevin]

Thank you. That makes perfect sense

[LarryMelman]

The interest rate on I-bonds issued from 11/1/20 to 4/30/21, for the first 6 months after the issue date (the first day of the month in which the bond was purchased) is 0.84*2 (inflation based) + 0 (fixed rate) = 1.68%. 6 months after the issue date, the rate will change to 1.77*2 (inflation based) + 0 (fixed) = 3.54%. The inflation based part of the rate changes every 6 months, but the fixed part never changes.

Until 5 years from the issue date, if you cash out, you forfeit the latest 3 months of interest. The calculator on savingsbonds.gov knows this.

So for your 10K bond with an issue date of 10/1/20:
1. It is currently earning 3.54%.
2. Through 4/30/21, it earned 6 months of interest at 1.68 which is $84 or so. However if you cashed out today (actually you can't cash out until one year, but never mind that) you would forfeit 3 months of interest. So it shows the value higher by only about $42.
3. The current interest rate is 3.54% and it is earning it. But over the next 3 months, the redemption value will only go up by 1.68 / 12 % per month, as months 4 thru 6 of interest come out of the forfeiture window.
4. Starting in month 9, for 6 months after that, the redemption value will start going up by 3.54/12 % per month.
5. If you hold until 5 years, there will be a jump in the value when the forfeiture period ends.

I hope this makes sense. The calculator knows all this stuff.

[DaveLeeNC]

We have 11 ($5k face value) I Bonds purchased around 2000 with fixed rates of 3.4% and 3.6%. I wish that I had bought more.

A few years ago I was thinking that I needed a plan to sell these over time to avoid selling them all in one year (putting me into income brackets that would affect Medicare costs). Given the interest rates of these bonds vs the current interest rate environment, I wonder if it might be best to let these things mature at 30 years and 'trickle sell them' after they stop earning interest. But 9 years from now is a long time and things may look a whole lot different in a few years.

dave

[audreyh1]

Quote:

Originally Posted by DaveLeeNC We have 11 ($5k face value) I Bonds purchased around 2000 with fixed rates of 3.4% and 3.6%. I wish that I had bought more. A few years ago I was thinking that I needed a plan to sell these over time to avoid selling them all in one year (putting me into income brackets that would affect Medicare costs). Given the interest rates of these bonds vs the current interest rate environment, I wonder if it might be best to let these things mature at 30 years and 'trickle sell them' after they stop earning interest. But 9 years from now is a long time and things may look a whole lot different in a few years. dave

That won’t work, because the interest accrued becomes taxable the year they mature.

[DaveLeeNC]

Quote:

Originally Posted by audreyh1 That won’t work, because the interest accrued becomes taxable the year they mature.

Audrey - thanks. I was unaware of that. It could have been quite a 1099-INT shock!

dave