I Bonds - Keep or Cash in ??

[rjk514]

The new I-bond rate of 2.11% which will run till May 2007, sucks and I have a number of bonds earning that, although the annual yield is close to 4% on those bonds ..My options seem to be to sit tight till May 1st and see what the new rate will be, hopefully better, or if not, cash in a number of them at that time, eat the interest penalty, and throw 11k at 2007
Trad. IRA for my wife and I, (both over 50). Also could just cash in a bunch now and start some non IRA CD's that should earn around 5% but would have to pay taxes on . Thoughts ??

[haha]

Quote:

Originally Posted by rjk514 The new I-bond rate of 2.11% which will run till May 2007, sucks and I have a number of bonds earning that, although the annual yield is close to 4% on those bonds ..My options seem to be to sit tight till May 1st and see what the new rate will be, hopefully better, or if not, cash in a number of them at that time, eat the interest penalty, and throw 11k at 2007 Trad. IRA for my wife and I, (both over 50). Also could just cash in a bunch now and start some non IRA CD's that should earn around 5% but would have to pay taxes on . Thoughts ??

I don't really get your question. Did you buy them as a short term substitute for a CD or T bill or some such?

If not, you bought a fixed real rate which one presumes you were satisfied with at the time of purchase. Your real yield won't change from whatever it was initially. If you should suddenly start getting 6% instead of 2.11% total yield, it would only be because CPI inflation over the measurement period has ticked up.

If your real yield is less than 2%, I would consider dumping the i bonds, though when to do it and whether to wait out the penalty period would be a matter of analysis for you.

Ha

[soupcxan]

I wouldn't hold any I-bonds with a fixed rate component below 2%, if you want inflation protection I'd buy ISM/OSM as a first choice, or TIPS (VIPSX) as a backup.

[haha]

Quote:

Originally Posted by soupcxan I wouldn't hold any I-bonds with a fixed rate component below 2%, if you want inflation protection I'd buy ISM/OSM as a first choice, or TIPS (VIPSX) as a backup.

The OP should know that ISM/OSM produce taxable income, as do TIPS. Also that ISM/OSM are corporate issues, not issued by or backed by government.

Ha

[teejayevans]

[quote=rjk514 ]
Thoughts ??
[/quote
How far from retirement are you?? If you are going to retire in
a couple of years or less, cash out when your tax bill will be
less, else I cash out now. Especially if don't have too much
interest accrued.

BTW, with the current inflation rate, it could be negative next
time, they won't be selling too many at effective 0% interest.
So if you are thinking of buying i-bonds, wait, they will HAVE
to raise the fixed portion in May.

[rjk514]

I started buying them in 2003 on a credit card to get free air miles, and I got a bunch, enought for 4 roundtrips to Phoenix and need to consider that as part of $$ earned by these suckers...I'm 6 months from retirement, I will probably hold on till May 1, check the new rate, and if not to my liking, cash in a bunch and buy some CD's, or if new fixed rate is favorable rebuy some and let them sit for a yr. and then decide again..a never ending cycle. Just trying to get a decent rate ( I can live with anything over 4.0%) and avoid taxes as much as possible. These dollars will either stay in I-bonds or CD's, as I have enough mutual funds, stocks, etc. Good thought on new fixed rate having to be higher or Uncle Sam won't sell any of these bad boys..

[teejayevans]

Quote:

Originally Posted by rjk514 I started buying them in 2003 on a credit card to get free air miles, and I got a bunch, enought for 4 roundtrips to Phoenix and need to consider that as part of $$ earned by these suckers...I'm 6 months from retirement, I will probably hold on till May 1, check the new rate, and if not to my liking, cash in a bunch and buy some CD's, or if new fixed rate is favorable rebuy some and let them sit for a yr. and then decide again..a never ending cycle. Just trying to get a decent rate ( I can live with anything over 4.0%) and avoid taxes as much as possible. These dollars will either stay in I-bonds or CD's, as I have enough mutual funds, stocks, etc. Good thought on new fixed rate having to be higher or Uncle Sam won't sell any of these bad boys..

I don't think they still do the credit card thing do they? I didn't see that option.

If you are 6 months away, I'd hold them until next year when your FIT rate
will be lower, assuming there is a big difference in the tax rate.

[rjk514]

No they don't do the credit card gig any more, but it sure was great while it lasted....

[clifp]

What is the coupon rate of the I-bonds. I think if it is below 2% sell above 3% hold (I have some at 3.6% which yes I purchased with cash back rebate card.) , and betwen 2-3% I guess it depends on what other investment options you have.

If you have any interest is pursuing additional college course, you can cash in EE and I-bonds tax free to pay for college tuition. I did this for my CFP course.

[rjk514]

I e-mailed the folks at the treasury www. site and hope to get a understandable answer from them on rates,etc. but I won't hold my breath.
I suspect they work hand in hand with the FEMA group...

[terminator]

Do you mean you are trying to figure out your fixed (real) rate? If so, go here:

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

If you bought in 2003 there's a good chance you have a fixed rate of 1.1%. That's as low as the fixed rate on the I bonds has gotten. I also bought some of them too in 2003 because the money market rates I could find at the time were even lower. I sold mine recently when I reached the point where the lost penalty interest was the 2.1% rate. FWIW, you could always sell them and buy TIPS instead. At least then you'd get around a 2.4 - 2.5% fixed rate.

[rjk514]

Will wait to see new rate on May 1, then sell if rate is poor and look for some decent CD's or if rate is good perhaps sell and rebuy at higher base rate. If I sell I think I would be selling the bonds at there low 3-mo penalty
rate of 2.11%. I think.. It just the tax problem for 2007 as this is my last year of work as I will retire Dec 31..

[burch64]

Series I Bonds Fixed Rates


Issue Date Rate
Sep 98 - Oct 98 3.40%
Nov 98 - Apr 99 3.30%
May 99 - Oct 99 3.30%
Nov 99 - Apr 00 3.40%
May 00 - Oct 00 3.60%
Nov 00 - Apr 01 3.40%
May 01 - Oct 01 3.00%
Nov 01 - Apr 02 2.00%
May 02 - Oct 02 2.00%
Nov 02 - Apr 03 1.60%
May 03 - Oct 03 1.10%
Nov 03 - Apr 04 1.10%
May 04 - Oct 04 1.00%
Nov 04 - Apr 05 1.00%
May 05 - Oct 05 1.20%
Nov 05 - Apr 06 1.00%
May 06 - Oct 06 1.40%
Nov 06 - Apr 07 1.40%

[clifp]

Quote:

Originally Posted by burch64 Series I Bonds Fixed Rates Issue Date Rate Sep 98 - Oct 98 3.40% Nov 98 - Apr 99 3.30% May 99 - Oct 99 3.30% Nov 99 - Apr 00 3.40% May 00 - Oct 00 3.60% Nov 00 - Apr 01 3.40% May 01 - Oct 01 3.00% Nov 01 - Apr 02 2.00% May 02 - Oct 02 2.00% Nov 02 - Apr 03 1.60% May 03 - Oct 03 1.10% Nov 03 - Apr 04 1.10% May 04 - Oct 04 1.00% Nov 04 - Apr 05 1.00% May 05 - Oct 05 1.20% Nov 05 - Apr 06 1.00% May 06 - Oct 06 1.40% Nov 06 - Apr 07 1.40%

I had no idea the rate plummetted so much after Oct 01, I wonder if 9/11 caused a huge spike in demand for inflation products. I guess I better hold on to my 3.4 and 3.6% bonds forever. I sure don't like anything below 2%, cause it sure makes a 4% SWR more difficult to achieve.

[cute fuzzy bunny]

Regular rates and money market/cd yields dropped so low the issuer didnt feel the need to offer a higher rate; competition set the tone.

Also, inflation indexed securities such as tips and ibonds were not well understood or widely bought when first issued, so the rates had to be pretty attractive to get a buyer.

Right now, the approximate long term yield of tips vs a regular treasury is about even. Any disparity is quickly hopped on and self adjusts back to parity.