The I Bond Thread

[Sunset]

We have purchased gifts to cover 2023 and 2024 purchases. I will be lazy and wait until April, when the next 6 month rate is known, before I consider buying gifts for 2025.

.....

I was thinking it might be smart to wait until ~April, when the new rate is announced. I'm thinking maybe it will be another fixed + inflation i-bond, and possibly the fixed rate will be 1% (for example) making it a better deal for long term holding than the current one.

If it's worse and back to a fixed 0%, I can always buy the current one in the last couple of weeks.

Anybody see anything wrong with this idea ?

 

[audreyh1]

I was thinking it might be smart to wait until ~April, when the new rate is announced. I'm thinking maybe it will be another fixed + inflation i-bond, and possibly the fixed rate will be 1% (for example) making it a better deal for long term holding than the current one.

If it's worse and back to a fixed 0%, I can always buy the current one in the last couple of weeks.

Anybody see anything wrong with this idea ?

Yes, you won’t be able buy the older bond by the time you know the new fixed rate which is announced May 1.

My experience is this: they do raise the fixed rate when inflation and rates are higher. However inflation has been dropping and rates mixed so I hadn’t really expected the fixed rate to increase in May when the new rate is announced May 1.

You can always do 50/50.

 

[Sunset]

Yes, you won’t be able buy the older bond by the time you know the new fixed rate which is announced May 1.

My experience is this: they do raise the fixed rate when inflation and rates are higher. However inflation has been dropping and rates mixed so I don’t really expect the fixed rate to increase in May when the new rate is announced May 1.

You can always do 50/50.

Thanks..

That explains why folks are keen to buy in the new year and grab the 0.40% fixed rate + inflation..

 

[audreyh1]

Thanks..

That explains why folks are keen to buy in the new year and grab the 0.40% fixed rate + inflation..

Well I might be wrong about the fixed rate. You can look at the IBond rate history on Treasury Direct and see when they’ve raised it and for how long. It could possibly be higher again due to the Fed Funds rate continuing to rise, [-]but 0.4% has been the highest in a long time.[/-]

Nope, was at 0.5% for two successive periods in 2018/2019. https://www.treasurydirect.gov/files/savings-bonds/i-bond-rate-chart.pdf

So maybe it will go up.

 

[pb4uski]

I'll decide based on the expected inflation part of the rate and assume that the real rate factor will be the same or better.

 

[Montecfo]

I'll decide based on the expected inflation part of the rate and assume that the real rate factor will be the same or better.

We may be surprised how low that rate is.

 

[Mulligan]

I'll decide based on the expected inflation part of the rate and assume that the real rate factor will be the same or better.

I would be thrilled with a 2% + 2% fixed. Maybe get a nice bone thrown on the fixed side since yields are so much higher now and possibly have a low CPI number print.

 

[audreyh1]

I would be thrilled with a 2% + 2% fixed. Maybe get a nice bone thrown on the fixed side since yields are so much higher now and possibly have a low CPI number print.

Ha ha! 0.5% is the highest it’s been in a looooong time. IBonds are way more popular than they were at the beginning which has kept the fixed rate very low.

 

[Mulligan]

Ha ha! 0.5% is the highest it’s been in a looooong time. IBonds are way more popular than they were at the beginning which has kept the fixed rate very low.

Remember todays interest rates are higher than they have been in a long time too. Treasury doesnt reveal formula but popularity probably is not the reason. Otherwise it would have remained 0% this past cycle as 6.4% is still higher than any bond of any duration. And it has been 0% fixed when CPI was lower, but so was the entire yield curve. Yes, though I agree 2% is a pipe dream, but I could see a one handle paired with a poor CPI that is fast becoming a possible reality.
It was 1.3% in 2007 which was about where our rates are now, so its possible it could get set higher. If not I wont be playing here. Too many ways to get yield that wasnt there over a year ago when I bought these again.

 

[Chuckanut]

Ibonds - even at a 0% base - are still giving me the best return on ultra-safe savings compared to anything else in the past two years. I'll drink a toast to Ibonds this New Years Eve.

 

[Mulligan]

Ibonds - even at a 0% base - are still giving me the best return on ultra-safe savings compared to anything else in the past two years. I'll drink a toast to Ibonds this New Years Eve.

I am lagging also as I jumped into them at 3.57% or so a year ago plus double gifting, so I still have the 6.4% cycle still upcoming too. People keep referring to high inflation, but for upcoming next cycle the worm is about to turn. This could be possibly a sub 3% print while one can now get around 4.25% for lowly 30 day CDs.

 

[Surewhitey]

Wow. I missed that one. When did it change to $35k?

ETA: Are you sure? The Treasury website says $5k.



https://www.treasurydirect.gov/rese...ingle calendar year,I bonds using your refund.

Late reply, but we do $10k each, sole proprietor (biz) of $10k & $5k paper from the tax return.

 

[Gearhead Jim]

I am lagging also as I jumped into them at 3.57% or so a year ago plus double gifting, so I still have the 6.4% cycle still upcoming too. People keep referring to high inflation, but for upcoming next cycle the worm is about to turn. This could be possibly a sub 3% print while one can now get around 4.25% for lowly 30 day CDs.

My credit union is now paying 4.25% on CD's from 18 months to 60 months, so ibond rates are still above that. But for how long?
It would be a bummer for DW and I to put a bunch of ibonds in our gift boxes for future gifting to each other, then have the ibond rate sink below our 5 year CDs and not be able to redeem the ibonds for a couple of years.

 

[Gumby]

Based on the most recent CPI numbers and forecasts for the numbers to be reported this month, the May 1, 2023 rate reset could be as low as 2% APR for the inflation component. I don't know if Treasury will continue with a fixed rate component (currently 0.4% APR). I am expecting to cash my I-bonds in as soon as the current 6.48% rate runs off (+3 months to mitigate the early redemption penalty.) That will have given me a composite 6.72% APR over the 21 months I will have held them. I will probably just buy straight 1 and/or 2 year Treasuries instead, and will likely start after the Fed raises rates again at their next meeting.

We are stuck with $20k of I-bonds that we cannot gift to each other and redeem until January 2025. If rates go to 2% APR in May 2023 and stay there, the composite rate on those gift bonds will be 4.98% APR over 33 months. Not as good, but still better than a checking account.

 

[pb4uski]

Based on the most recent CPI numbers and forecasts for the numbers to be reported this month, the May 1, 2023 rate reset could be as low as 2% APR for the inflation component. I don't know if Treasury will continue with a fixed rate component (currently 0.4% APR). I am expecting to cash my I-bonds in as soon as the current 6.48% rate runs off (+3 months to mitigate the early redemption penalty.) That will have given me a composite 6.72% APR over the 21 months I will have held them. I will probably just buy straight 1 and/or 2 year Treasuries instead, and will likely start after the Fed raises rates again at their next meeting.

We are stuck with $20k of I-bonds that we cannot gift to each other and redeem until January 2025. If rates go to 2% APR in May 2023 and stay there, the composite rate on those gift bonds will be 4.98% APR over 33 months. Not as good, but still better than a checking account.

I have the same situation... even if reset rates go to 2% once the 6.48% is over, I'll have yielded about 6.32% on the 2024 gift delivered and redeemed in Jan 2024 and 4.89% on the 2025 gift delivered and redeemed in Jan 2025 which were very good rates in early 2022 for 2-3 year paper.

So 6.48% for 6 months and 2% for 3 months would only be about 3.76% for a year aftr the 3-month penalty, so buying IBonds now with new money for a year isn't very attractive given MM rates are better than that, so if it does go to 2% I think we'll hear a giant sucking sound out of IBonds.

 

[Chuckanut]

I am wondering what will happen to the fixed portion of the I-bond rate. Currently it is at 0.4%. But, if the I-bond gods decide to up it to 1+% over the next 12 months, it could keep them in the game.

If they do significantly increase the fixed rate I will have to figure out if it's best to keep my old 0% fixed rate I-bonds or buy the newer ones. Time will tell.

 

[Jerry1]

I am expecting to cash my I-bonds in as soon as the current 6.48% rate runs off (+3 months to mitigate the early redemption penalty.)

I think we discussed before, but to make sure, the early redemption penalty is on the most current 3 months of interest - correct? So letting them run a bit to make sure you’re only giving up the smaller interest payments makes sense.

 

[cyber888]

So current IBond rate (Oct. 2022) is at 6.89% or 6.49% without the 0.4% fix component.

What's the most likely iBond rate after that (April 2023) ? 5%, 4%, 3%, 2% ?

 

[Sunset]

So current IBond rate (Oct. 2022) is at 6.89% or 6.49% without the 0.4% fix component.

What's the most likely iBond rate after that (April 2023) ? 5%, 4%, 3%, 2% ?

In my completely unscientific analysis I think it will be 5% with .5% fixed rate, or 4% with a 1% fixed rate.

 

[Gumby]

In my completely unscientific analysis I think it will be 5% with .5% fixed rate, or 4% with a 1% fixed rate.

You can actually take a stab at calculating it. The formula for the May 2023 inflation component is March 2023 CPI/September 2022 CPI. September 22 CPI (reported on 10/13) was 296.808 November CPI was 297.711 A site that I trust predicts December CPI will be reported at 298.3 So that's half of the rate calculation in the bag as of next week. If it stays there for three more months(CPI could actually go down, as it did from Oct to Nov 22), then the calculation is 298.3/296.808 = 1.00503, which is a semiannual rate of 0.5% or an APR of only 1.0% If inflation for the next three months matches that of the last three months, it would be an APR of 2%. To get to a 5% APR on I-bonds would require the March 2023 CPI to be at 304.228 ( = 296.808 x 1.025), which would be year over year inflation of 5.8% since March 2022 and 3 month inflation at an equivalent of 7.95% annually. It seems unlikely that the current (not historical) rate of inflation is ~8%.

Here is a visual aid.

 

[pb4uski]

In my completely unscientific analysis I think it will be 5% with .5% fixed rate, or 4% with a 1% fixed rate.

If that were the case I would consider keeping them, especially if the fixed rate was 1%.

 

[Sunset]

If the fixed rate is 1% , I'll be buying more, and redeeming my 0% fixed rate ones as fast as I can..
Actually, if the fixed rate remains at .4% it will still be worth it to effectively trade in my current 0% ones for newer ones.

 

[Mulligan]

My credit union is now paying 4.25% on CD's from 18 months to 60 months, so ibond rates are still above that. But for how long?

It would be a bummer for DW and I to put a bunch of ibonds in our gift boxes for future gifting to each other, then have the ibond rate sink below our 5 year CDs and not be able to redeem the ibonds for a couple of years.

That is something you have to consider. I may be doing like Sunset and selling the O% fixed and rotate the same amount into Fixed. I wont abandon Ibonds but may reconstitute to get some fixed with a positive yield.
I doubt it will happen, but I will at least pay attention to what yield they toss out for the Series EE next cycle. It has basically went from 0% to 2.2% but it needs to jump more for me to look at them.

 

[Gumby]

I think we discussed before, but to make sure, the early redemption penalty is on the most current 3 months of interest - correct? So letting them run a bit to make sure you’re only giving up the smaller interest payments makes sense.

That is correct. You lose the last three months of interest if you redeem in less than 5 years.

 

[pb4uski]

Based on the most recent CPI numbers and forecasts for the numbers to be reported this month, the May 1, 2023 rate reset could be as low as 2% APR for the inflation component. I don't know if Treasury will continue with a fixed rate component (currently 0.4% APR). I am expecting to cash my I-bonds in as soon as the current 6.48% rate runs off (+3 months to mitigate the early redemption penalty.) That will have given me a composite 6.72% APR over the 21 months I will have held them. I will probably just buy straight 1 and/or 2 year Treasuries instead, and will likely start after the Fed raises rates again at their next meeting.

We are stuck with $20k of I-bonds that we cannot gift to each other and redeem until January 2025. If rates go to 2% APR in May 2023 and stay there, the composite rate on those gift bonds will be 4.98% APR over 33 months. Not as good, but still better than a checking account.

I found this article interesting: I Bonds: A not-so-simple buying guide for 2023

Short-term investment
... So I’d guess the variable rate at the May reset will be lower than the current 6.48%, but most likely will still be at least 1.8%, based on 0.15% monthly inflation on average over the six months. That’s a conservative estimate.

Add on the fixed rate of 0.4% and you can conservatively estimate an annualized return of about 2.2% in the second six months. That creates a total return of about 4.54% for one year (6.89% + 2.2% / 2 = 4.54%) Remember, this is a conservative estimate. If inflation runs higher, your return would be higher. If inflation runs at 0.4% from December to March, the new variable rate would be 3.8%. Add on the fixed rate and you get to 4.2%. Your total return after one year would be about 5.5%.

But … redeeming an I Bond after 12 months will incur a three-month interest penalty, wiping out more than 1% of that return. ...

Conclusion. If your only interest in I Bonds is a quick one-year investment, you might want to look at competitive nominal investments like one-year bank CDs, online savings accounts or one-year Treasury bills. If inflation moderates, the returns could be similar but without the three-month interest penalty. The advantage of an I Bond is long-term inflation protection. If you aren’t concerned about inflation in the long term, look elsewhere.

But if you remain interested in the I Bond for one year, then I’d suggest using TreasuryDirect to set a purchase date later this month, maybe Jan. 27, to lock in January as your starting month. You could then redeem early in January 2024. ...