Am I Correct About I-Bonds?

[JPatrick]

Now that the fed has essentially locked in low rates for some time to come, those I-Bonds are looking pretty attractive.
Please tell me if I am figuring the rates correctly.
First off, I'm assuming the inflation kicker in November will look pretty good. Of course the current total rate at 4.6 is quite nice.
So I'm thinking of waiting until the last week of October when I feel pretty certain we will be able to guess the new November rate fairly closely.
If the new inflation rate looks attractive, I would buy a new batch of bonds around the last day of October.
Here's the part I'm a bit fuzzy on.
If I buy in October, my assumption is that I will collect the current rate (4.6) for a full six months at which time I would collect the new (November 2011) rate for the next 6 months. Of course, before that second six month term expires I would know what rate I would receive next. If it looks good I could continue, if not I could bail out with one quarter forfeiture.
Am I understanding the interest rate bit correctly?

 

[thefinancebuff]

If I buy in October, my assumption is that I will collect the current rate (4.6) for a full six months at which time I would collect the new (November 2011) rate for the next 6 months. Of course, before that second six month term expires I would know what rate I would receive next. If it looks good I could continue, if not I could bail out with one quarter forfeiture.

So far so good but if the rate for the 3rd six months is bad, you should still wait another 3 months before bailing out. That way you fully collect the good rate in the 2nd six months. Otherwise you will forfeit 3 months of a good rate.

 

[JPatrick]

So far so good but if the rate for the 3rd six months is bad, you should still wait another 3 months before bailing out. That way you fully collect the good rate in the 2nd six months. Otherwise you will forfeit 3 months of a good rate.

Yup, that's a very good point. Hazy as it may be, my crystal ball says inflation may still be around when that time comes.
Thanks.

 

[DblDoc]

Also remember that as of Jan 1 2012 paper I-bonds will no longer be available Individual - I Savings Bonds In Depth. You will be limited to only $5k/SSN - unless you want to do the back door tax refund thing.

DD

 

[jdw_fire]

unless you want to do the back door tax refund thing.

DD

please explain.

 

[DblDoc]

please explain.

Individual - Using Your Income Tax Refund to Save By Buying Series I U.S. Savings Bonds

DD

 

[jdw_fire]

Individual - Using Your Income Tax Refund to Save By Buying Series I U.S. Savings Bonds

DD

thank you

 

[Chickadee]

I've also been considering I-Bonds. Is it once per calendar year that you can buy, or once per rolling year? For example, could someone get $5k in paper I-Bonds at a bank and $5k in I-Bonds through TreasuryDirect on October 31, 2011, and then also get another $5k in I-Bonds through TreasuryDirect in January 2012? Or do they have to wait until November 1, 2012 instead to get the 3rd $5k? I didn't see this clarified anywhere on their website.

 

[DblDoc]

I've also been considering I-Bonds. Is it once per calendar year that you can buy, or once per rolling year? For example, could someone get $5k in paper I-Bonds at a bank and $5k in I-Bonds through TreasuryDirect on October 31, 2011, and then also get another $5k in I-Bonds through TreasuryDirect in January 2012? Or do they have to wait until November 1, 2012 instead to get the 3rd $5k? I didn't see this clarified anywhere on their website.

Individual - Buy I Savings Bonds

The purchase limit for both paper and electronic I Bonds is $5,000 per calendar year.

DD

 

[Masquernom]

Isn't the interest paid just at the rate of 2.3% for the next 6 months? That doesn't mean 4.6% as the original post mentioned?

For May 2011, 0% base rate + 2.3% inflation rate.

I assume that's an annualized rate for a six month period. Not a 2.3% return for six months?

 

[brewer12345]

Isn't the interest paid just at the rate of 2.3% for the next 6 months? That doesn't mean 4.6% as the original post mentioned?

For May 2011, 0% base rate + 2.3% inflation rate.

I assume that's an annualized rate for a six month period. Not a 2.3% return for six months?

It is 4.6% annualized or 2.3% for 6 months. But since you can only do $5k annually per SSN, its hard to get excited.

 

[JPatrick]

It is 4.6% annualized or 2.3% for 6 months. But since you can only do $5k annually per SSN, its hard to get excited.

Someone check my IBond facts, but I think an individual can buy 5K in paper and 5K electronic this year for a 10K total or 20K if the DW does the same.

 

[brewer12345]

Someone check my IBond facts, but I think an individual can buy 5K in paper and 5K electronic this year for a 10K total or 20K if the DW does the same.

True this year, but no paper bonds next year so unless they bump the amount of electronic you can buy it is 5k per.

 

[JPatrick]

True this year, but no paper bonds next year so unless they bump the amount of electronic you can buy it is 5k per.

Got it....Thanks

 

[Running_Man]

It is 4.6% annualized or 2.3% for 6 months. But since you can only do $5k annually per SSN, its hard to get excited.

From the government site

Here's how the composite rate for I bonds issued May 2011 – October 2011 was set:
Fixed rate = 0.00%
Semiannual inflation rate = 2.30%
Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
Composite rate = [0.0000 + (2 x 0.0230) + (0.0000 x 0.0230)]
Composite rate = [0.0000 + 0.0460 + 0.0000000]
Composite rate = 0.0460
Composite rate = 0.0460
Composite rate = 4.60%

 

[Mulligan]

Ok, sorry one last time as I just read something that makes these more appealing. I just read on a website Savings Bond Advisor that the November reset would be 3.3% (6.6% annualized) if inflation rate continues at this pace the last 2 months of this cycle. So if I bought 5k online and 5k at the bank, next month I would in effect get 2.3% for six months , then quite possibly get 3.3% in march for 6 months (if projection bears out). This would be about 5.6% yearly rate of return. Then if I buy 5 k more in January, I would get the 3.3 % and even if inflation rate resets next May at 0%, I still in effect would get 3.3% for 12 months on that second purchase. Is my thinking correct?
For small time investors especially married ones you could get $30,000 (10k of it in January) into I bonds within the next 6 months and get some decent safe interest rate returns. If I am wrong on my math someone please tell me because it seems like it's something I should do for the short term anyways.

 

[Chickadee]

I-Bonds seem like a good choice for me right now, as a counter-balance to my aggressive 401k choices. Here's my plan:

2011: bought $5000 in paper I-Bonds a couple weeks ago (received last week)
2011: will buy $5000 in I-Bonds through Treasury Direct as soon as I receive my access card (October)
2012: will buy $5000 in I-Bonds through Treasury Direct in January
2012: increased my tax withholding through work in 2011, to have a $5000 federal refund in early 2012, to get $5000 in paper I-Bonds

Additional info: will also fully fund Roth IRA ($5000), and will fund CDs/401k/savings with excess

 

[Mulligan]

I-Bonds seem like a good choice for me right now, as a counter-balance to my aggressive 401k choices. Here's my plan:

2011: bought $5000 in paper I-Bonds a couple weeks ago (received last week)
2011: will buy $5000 in I-Bonds through Treasury Direct as soon as I receive my access card (October)
2012: will buy $5000 in I-Bonds through Treasury Direct in January
2012: increased my tax withholding through work in 2011, to have a $5000 federal refund in early 2012, to get $5000 in paper I-Bonds

Additional info: will also fully fund Roth IRA ($5000), and will fund CDs/401k/savings with excess

I agree, I first thought "well it's only $10000" but then I started thinking the government is begging me to take $400 in interest for a year with no state income tax coming out of it. I got my card from treasury direct this week and am buying them next week, and then walking down to the bank and buying $5k more.

 

[powerplay]

Hmm, I didn't know you had to get a card from Treasury Direct in order to buy bonds online. Guess I better get going and set up an account so I can buy another $5k in 2011.

 

[Mulligan]

Hmm, I didn't know you had to get a card from Treasury Direct in order to buy bonds online. Guess I better get going and set up an account so I can buy another $5k in 2011.

It's some kind of security mechanism. It took about 10 days for me to get it. I haven't used it yet, but will next week to capture this months interest.

 

[powerplay]

It's some kind of security mechanism. It took about 10 days for me to get it. I haven't used it yet, but will next week to capture this months interest.

OK, thank you! It sounds like it doesn't take long to get it.

 

[heirloom]

According to the Fed., inflation will rise slowly. I went to the site someone referred us to and it says you keep the same rate for the life of the bond. So, wouldn't it be better to wait until November? I'm thinking of getting some too. I just don't like the idea of purchasing them electronically.

Fixed Rate:

• Announced each May and November
• Applies to all bonds issued during the six months period beginning with the announcement date.
• Remains the same for the life of the bond

 

[Mulligan]

According to the Fed., inflation will rise slowly. I went to the site someone referred us to and it says you keep the same rate for the life of the bond. So, wouldn't it be better to wait until November? I'm thinking of getting some too. I just don't like the idea of purchasing them electronically.

Fixed Rate:

[*]Announced each May and November
[*]Applies to all bonds issued during the six months period beginning with the announcement date.
[*]Remains the same for the life of the bond
[*]

No, that's not correct. The fixed part is for the life of the loan. The trouble is the fixed part is set at 0%. The only interest you will accrue from the bond is the inflation rate which is adjusted 2 x a year. If you buy before end of October you are guaranteed the 4.6 % for 6months. In November they will tell you what your rate is for the following 6 months. I wish I could lock it in for 4.6% for life of bond. Heck, I might even get married to get another $10,000 worth..... UH on second thought maybe it's not worth the $10k...

 

[JPatrick]

Heck, I might even get married to get another $10,000 worth..... .

Forgive my curiosity, but have you gotten any interesting offers??

 

[heirloom]

Two questions:

Are you absolutely sure you can purchase both online and through the bank this year?

2. Can you purchase them by withdrawling from a severance check? I get taxed on them like they are 'normal' income. So I wonder if I can purchase I bonds by withdrawling from them, plus purchasing from my bank.