Purchased I bonds previously, wondering if now a good time to buy more

[joecaf53]

11 years ago I purchased I bonds and presently receiving about 5.5% rate and have not redeemed them yet. I am now looking to increase my bond allocation in a taxable account since I have maxed out my tax deferred accounts and wanted to know if now may be a good time to purchase more.

I did have a few questions.

1. On my previous purchase I bought in $1,000 denominations and wanted to see if I should go with a higher denomination. I know that only $10,000 can be purchased a year.

2. I am 55 years old and doubt if I will hold them the full 30 years, but will hold them at least five so no loss of interest and I do have an emergency fund already set up as well as my previous bond purchase. Is 55 too old to purchase?

3. My old bonds are in paper form. Is it better to convert to electronic? If not, how easy is it to redeem them?

4. I believe I read somewhere that EE bonds might be a better alternative. Any thoughts on this?

Thank you.

 

[JPatrick]

11 years ago I purchased I bonds and presently receiving about 5.5% rate and have not redeemed them yet. I am now looking to increase my bond allocation in a taxable account since I have maxed out my tax deferred accounts and wanted to know if now may be a good time to purchase more.

I did have a few questions.

1. On my previous purchase I bought in $1,000 denominations and wanted to see if I should go with a higher denomination. I know that only $10,000 can be purchased a year.
The only benefit to higher denominations is fewer to keep track of. On the other hand, if you plan to cash these at a rate of $1000 per month, then the smaller may serve that plan better.
2. I am 55 years old and doubt if I will hold them the full 30 years, but will hold them at least five so no loss of interest and I do have an emergency fund already set up as well as my previous bond purchase. Is 55 too old to purchase?
55 is not too old.. Shoot, you are still a babe in swaddling clothes.

3. My old bonds are in paper form. Is it better to convert to electronic? If not, how easy is it to redeem them?
Convert for safety perhaps, but still can cash at most banks I believe.

4. I believe I read somewhere that EE bonds might be a better alternative. Any thoughts on this?

If you believe interest rates will climb, go for the I's, but you are buying a 0% fixed so it might be smart to swap these later as the fixed increases.

Thank you.

I don't feel that I-bonds are only long term investments.
Some of us (the October 2011 club) bought bonds following the plan noted in the link below, and have had, and continue to have nice safe returns.
Series I Savings Bonds Tops CDs, Pays 3.11% in 12 Months - MyBankTracker.com

 

[audreyh1]

We purchased some IBonds recently as part of our cash allocation in our retirement fund. They are paying better than many CDs, the rate will increase with inflation, and I don't have to pay taxes on the compounding interest income until I redeem.

We've only ever done it electronically, and I have never tried to retrieve them, but I don't expect any problems because my bank account is linked that we purchased from.

We're in our 50s.

 

[imoldernu]

I had my say on I bonds yesterday... here
http://www.early-retirement.org/forums/f28/where-to-keep-cash-64446.html

It included a link to the government site, with full FAQ.

 

[rbmrtn]

They seem like a good place to park some emergency fund money. Although @ 0% current rate, they are inflation adjusted. If you could buy enough of them, you create your own inflation adjusted pension.

There is way to get 5K more by using tax refund in addition to the 10k electronic issue. You can overpay your tax then get the refund to buy paper I-bonds. This was discussed on bogleheads and here

Backdoor to Paper Savings Bonds

 

[ronocnikral]

They seem like a good place to park some emergency fund money. Although @ 0% current rate, they are inflation adjusted. If you could buy enough of them, you create your own inflation adjusted pension.

There is way to get 5K more by using tax refund in addition to the 10k electronic issue. You can overpay your tax then get the refund to buy paper I-bonds. This was discussed on bogleheads and here

Backdoor to Paper Savings Bonds

The problem with the e-fund money is waiting a year to redeem. So, we step about $10k a year in for our e-fund.

Don't forget that the limit is per SSN. But the $5k is per tax filing. So a couple filing jointly could max do $25k/yr.

DD's 529 is also getting a little big, 13 months old and she nearly has $15k. So, she may be buying some ibonds to build in a little flexibility in her college funding.

 

[Alan]

Joe,

As to your question on buying smaller denominations, it doesn't matter. Whether paper or electronic you can redeem less than the bond value, as little as $25 at a time.

 

[Mulligan]

The only way I would consider purchasing EE Bonds was if you were planning on holding them to maturity of 20 years. That is when they by law double in purchase price, which averages out over 3.5%. Hold them a day less, and they will bring you way under 1% a year (I believe it's 0.6 %). This current 6 month cycle for IBonds is still negative, so the following 6 month payment cycle could possibly net you 0% fixed 0% inflation adjustment. You may want to purchase after May 1 to avoid this dip. However, it is possible if 0% inflation occurs for the cycle, they give a .1 % or so fixed component for the bond. That wouldn't be known until after the purchase window though, I believe.

 

[audreyh1]

The only way I would consider purchasing EE Bonds was if you were planning on holding them to maturity of 20 years. That is when they by law double in purchase price, which averages out over 3.5%. Hold them a day less, and they will bring you way under 1% a year (I believe it's 0.6 %). This current 6 month cycle for IBonds is still negative, so the following 6 month payment cycle could possibly net you 0% fixed 0% inflation adjustment. You may want to purchase after May 1 to avoid this dip. However, it is possible if 0% inflation occurs for the cycle, they give a .1 % or so fixed component for the bond. That wouldn't be known until after the purchase window though, I believe.

Huh? We aren't at 0% or neg inflation at the moment.

 

[Mulligan]

Huh? We aren't at 0% or neg inflation at the moment.

Yes, for this current 6 month cycle we are. Remember I Bonds are tracked from CPI from November through April. They do not track trailing 12 month CPI that is reported in paper on monthly basis.

 

[audreyh1]

Yes, for this current 6 month cycle we are. Remember I Bonds are tracked from CPI from November through April. They do not track trailing 12 month CPI that is reported in paper on monthly basis.

Based on the CPI-U change from September of the previous year through March, we still have 3 months to go.

Looks like inflation often flattens or drops a bit in Q4 and then picks up again in Q1 - must be the gas prices. Thanks for reminding me of the sequence though, I had completely forgotten.

 

[Mulligan]

Based on the CPI-U change from September of the previous year through March, we still have 3 months to go.

Looks like inflation often flattens or drops a bit in Q4 and then picks up again in Q1 - must be the gas prices. Thanks for reminding me of the sequence though, I had completely forgotten.

Well between the two of us we will eventually get it right. The concept of I Bonds and the purchasing of them is easy enough, it's remembering all the minute details of them, including when to purchase them that is the maddening part. I also incorrectly mentioned something earlier. Let's make a big assumption that this cycle ends at 0%. Then in Mid April after March CPI is announced you have a 2 week window to snag the current rate of 1.76% (I think it's that give or take a hair) for 6 months before having to assume the 0% rate. But if you want to avoid the 0% rate, you would have to wait until after November 1st to purchase them. The last 6 month cycle was under 0% for the first half, but went above at the end, so it could happen again. I don't think IBonds have ever "paid" 0% fixed and 0% inflation rate at the same time. So I will be curious what they will do this time if that happens. I have too many CPI's to keep track of. The most important one is my COLA which is July to July. However, it's fixed at 2%, but inflation must be above 0.0% for me to get it. So I "root" for 0.1% to maximize my COLA. I don't want above 2%!

 

[audreyh1]

Well between the two of us we will eventually get it right.

Yep -

I don't sweat the timing though - I figure it all comes out in the wash sooner or later.

 

[tinlizzy]

May 2009 was zero/zero I-Bonds: Current and Historical I=Bond Composite Rates

But I guess it's all relative because I remember feeling relieved that something wasn't losing money (and my bonds are 1% fixed, so it wasn't quite zero for me).

 

[photoguy]

Practically speaking, I think I-bonds are pretty much superior in every way to cash.

 

[Mulligan]

May 2009 was zero/zero I-Bonds: Current and Historical I=Bond Composite Rates

But I guess it's all relative because I remember feeling relieved that something wasn't losing money (and my bonds are 1% fixed, so it wasn't quite zero for me).

Good link.. I did see however from your link they actually gave a .1% fixed on that May 2009, so at least you had something to carry forward with on the next cycle. I wonder if they will do it this time if CPI is under 0%.

 

[imoldernu]

It's easy to get dizzy when talking IBonds... Here's an excerpt from one of my Ibonds that comes from Savings Bond Wizard... the Treasury's calculator. It shows the Interest rate and yield at any point in time. This was the report from 2009.

 

[audreyh1]

It's easy to get dizzy when talking IBonds... Here's an excerpt from one of my Ibonds that comes from Savings Bond Wizard... the Treasury's calculator. It shows the Interest rate and yield at any point in time. This was the report from 2009.

Sweet!

 

[scrinch]

Here's an excerpt from one of my Ibonds that comes from Savings Bond Wizard... the Treasury's calculator. It shows the Interest rate and yield at any point in time.

I've got a half dozen of those from Nov 2000 that look fairly similar. Their value is currently about half principal and half interest. I'll tell you my friends thought I was mad putting $60k in government bonds during the height of the dotcom boom! I suppose if I was prescient and could time the market, they would have been right to think so. But I can't and they weren't.

 

[shotgunner]

I don't think IBonds have ever "paid" 0% fixed and 0% inflation rate at the same time.

I believe that it was 2009 that I got the painful lesson the I bond floor is 0%. I was under the mistaken impression one would always get the fixed rate (mine are 1%). My recall is during that 6 month window even those folks who had 3% fixed rates earned 0%.

Although I don't think energy per se is part of the CPI equation for I bonds this 0% return followed the crash in gasoline prices in early '09 (under $2 a gallon). It seems whenever there is a major spike in gasoline prices the I bond interest rate 6 months later goes up.

All things considered I am quite happy with my I Bonds over the last 8 years.

 

[audreyh1]

Yes, food and energy prices are contained in the CPI-U use to calculate IBond rates.

We had deflation in 2008/2009, and I think I remember my rate being 0% for a 6 month period. Considering that my retirement portfolio had just taken a 27% tumble, it didn't seem such a bad thing at the time .

 

[BreathFree]

Let's make a big assumption that this cycle ends at 0%. Then in Mid April after March CPI is announced you have a 2 week window to snag the current rate of 1.76% (I think it's that give or take a hair) for 6 months before having to assume the 0% rate.

Is this two week window you refer to simply the delay in the change of the I-bond current rate after the CPI is announced. Is there always a two week delay?

The treasury website currently shows 1.76%. If I purchased an I-bond today will I get 1.76%. Where does the 0% rate come from? Are you saying that it may drop to 0% for the second half of the year? I am new to I-bonds but am looking to purchase soon.

 

[rbmrtn]

The treasury website currently shows 1.76%. If I purchased an I-bond today will I get 1.76%. Where does the 0% rate come from? Are you saying that it may drop to 0% for the second half of the year? I am new to I-bonds but am looking to purchase soon.

Yes, the inflation component for I-Bonds is reset every 6 months, depending on what the CPI-U is. It's possible for it to be zero for that 6 month period. Current interest rate component 0% for the life of the bond.

This site is good for savings bond info, in addition to the gov site

Series I US Savings Bonds: US Savings Bonds

 

[BreathFree]

OK. Got it. Thanks for the explanation

 

[Mulligan]

OK. Got it. Thanks for the explanation

The 2 week window, is created by the fact that march's CPI is announced during the middle of April. You can then compare march CPI to the start of the 6 month cycle to determine the CPI rate. Boglehead and Fallwallet forums math nerds will immediately post the next cycle rate, so you will know if you want to buy before to get current rate or wait a couple weeks and get the new rate. I don't think the government officially announces until May 1, when they officially decide the fixed rate. All in all, not probably a big deal. Even if you buy now and next 6 months are zero, you still in effect would get about .9% for a year which isn't any worse than a 1 year CD. I will wait just for the fun of it (if it is zero, or less) to deposit my 10k after to see if they attach a tiny fixed rate component to the bond.