Why Aren't I-Bonds Getting More Attention?

[wmc1000]

Added another $10,000 today for 2024 delivery. DW and I now are positioned at:

$10,000 ea in our accts.
$10,000 gift in DW's acct. for 2023 delivery to me.
$10,000 gift in my acct. for 2023 delivery to DW
$10,000 gift in my acct. for 2024 delivery to DW

 

[oldtimer]

Do existing iBonds receive the same interest rate in the future as is being applied to newly purchased iBonds?

The fixed rate component on existing I-Bonds will not change in the future, just the inflation rate component changes on existing bonds. So if inflation drops to 1%, then I-Bonds purchased today with a 0% fixed rate component will only pay 1% (0+1) for that 6 month period.

Future I-Bond purchases will have the same inflation rate adjustment as existing I-Bonds, but will use the fixed rate component for that future I-Bond. Say in 10 years the fixed rate is 1.5% on I-Bonds purchased in 2032 and inflation is 1%, then the 2032 bond is paying 2.5% (1.5+1) for the 6 month period. 2022 purchased I-Bonds will pay 1% (0+1).

 

[Sunset]

Although I've been buying I bonds for years I can't help myself from thinking about those jumping on the bandwagon. What was your plan prior to this anomaly?

Didn't know about I-bonds.

Needed someone to explain in detail why they are good and how it works, must have missed your post years ago doing that

 

[Gumby]

To add to my earlier post, from what I have read, the discretionary fixed portion of the I-bond rate will likely not move off of zero until TIPS real rates of return become positive. Probably not until that gets to +0.25%.

 

[Lsbcal]

To add to my earlier post, from what I have read, the discretionary fixed portion of the I-bond rate will likely not move off of zero until TIPS real rates of return become positive. Probably not until that gets to +0.25%.

TIPS are at about +0.5% for the 5 year.

 

[Ncc1701]

I keep everything at one brokerage and the thought of dealing with Treasury Direct makes me cringe. Their website and service are horrible. I told myself I would never do business with an organization that requires a Medallion stamp to do anything. Those things are nearly impossible to get these days.

Nope, not worth it to me. I'll take my chances in a balanced fund.

 

[finnski1]

I keep everything at one brokerage and the thought of dealing with Treasury Direct makes me cringe. Their website and service are horrible. I told myself I would never do business with an organization that requires a Medallion stamp to do anything. Those things are nearly impossible to get these days.

Nope, not worth it to me. I'll take my chances in a balanced fund.

Took me all of about 10 minutes to set up and purchase $10k each for DW and I, no problems for me.

 

[pb4uski]

... the thought of dealing with Treasury Direct makes me cringe. Their website and service are horrible. I told myself I would never do business with an organization that requires a Medallion stamp to do anything. Those things are nearly impossible to get these days. ...

I agree... Treasury Direct sucks and Medallion signatures are a dinosaur. But for 9.62% I'll tolerate it.

I personally have not had any problems, but I have relatives that have had problems.

 

[Ncc1701]

I agree... Treasury Direct sucks and Medallion signatures are a dinosaur. But for 9.62% I'll tolerate it.

I personally have not had any problems, but I have relatives that have had problems.

I hear ya but a 1 year cd is 3%, so the I bond premium is really 6.6%. Still good but I just cant do it.

 

[Gumby]

Based on today's CPI-U release, at the next I-Bond rate reset on November 1, 2022, the rate will be at least 6.13% APR. And there are still three more months of CPI increases to add to that.

Based on todays CPI-U release, the rate reset on November 1, 2022 would be 6.10% APR if there is no further change for the next two months (Aug and Sep). CPI-U actually went down from 296.311 to 296.276 from June to July 2022.

 

[braumeister]

CPI-U actually went down from 296.311 to 296.276 from June to July 2022.

And CPI-W is likewise down a bit.

 

[pb4uski]

So if I assume a purchase in August and 9.62% for the first 6 months, 6% for the second six months and 0% thereafter and a 3-month early withdrawal penalty... for one-year and 15-month holding periods I Bonds are very attractive compared to short term CDs or USTs. Ditto for gift box purchases in advance for your 2024 allocation.

But with the run up in 2-4 year CDs and USTs, the worst case I Bond scenarios are not an attractive replacement for 2-4 year CDs/USTs. YMMV.

Term	1.0	1.3	1.4	2.4	3.4
IRR	6.38%	6.30%	5.54%	3.21%	2.26%
08/01/22	-10,000	-10,000	-10,000	-10,000	-10,000
08/01/23	10,638
11/01/23		10,795
01/01/24			10,795
01/01/25				10,795
01/01/26					10,795

 

[Gumby]

So if I assume a purchase in August and 9.62% for the first 6 months, 6% for the second six months and 0% thereafter and a 3-month early withdrawal penalty... for one-year and 15-month holding periods I Bonds are very attractive compared to short term CDs or USTs. Ditto for gift box purchases in advance for your 2024 allocation.

But with the run up in 2-4 year CDs and USTs, the worst case I Bond scenarios are not an attractive replacement for 2-4 year CDs/USTs. YMMV.

Term	1.0	1.3	1.4	2.4	3.4
IRR	6.38%	6.30%	5.54%	3.21%	2.26%
08/01/22	-10,000	-10,000	-10,000	-10,000	-10,000
08/01/23	10,638
11/01/23		10,795
01/01/24			10,795
01/01/25				10,795
01/01/26					10,795

A 2 year CD at one of my banks is now at 3.0%, so it is about a wash for me with the 2025 gift box allocation. And I don't really see rates going to 0% next May. But I do agree that your methodology is the best way to analyze it.

An interesting question is how and when to unwind the positions we have built up over this past year. I'm thinking that, once I am past the one year point for any bond, and prior to the 5 year point, I consider the rate reset in front of me. If the new rate is less than a 9 month CD, I wait until my current rate runs off, plus 3 months, and then redeem. Once I hit the 5 year point, if ever, I use the 6 month rate and don't need to wait the extra 3 months to sell.

 

[Gumby]

Based on todays CPI-U release, the rate reset on November 1, 2022 would be 6.03% APR if there is no further change for September. CPI-U went down again from 296.276 to 296.171 from July to August 2022.

 

[jldavid47]

Based on todays CPI-U release, the rate reset on November 1, 2022 would be 6.03% APR if there is no further change for September. CPI-U went down again from 296.276 to 296.171 from July to August 2022.

Even 6.03% APR for 6 months would be fine with me. These small drops in the top-line CPI index numbers the past 2 months appear to be mostly driven by pull-backs in gasoline prices since June. Will that continue? No idea. Food was up 0.7% month-over-month and that trend does not appear to be abating.

If I were betting on the index number for September I'd bet on a small month-over-month increase. However, I don't have a crystal ball and I base that prediction on the notion that gasoline prices have stabilized this month. We'll see.