The I Bond Thread

[calmloki]

Currently sitting on $10k and $10,025 in our two gift accounts. Did cross gifts of $10k and cashed those in on 1/2/2024. Any way we can liquidate the remaining gift account amounts before 1/1/2025 other than finding different gift recipients?

 

[pb4uski]

Still sitting on $10k and $10,025 in our two gift accounts. Did cross gifts and cashed those in on 1/2/2024. Any way we can liquidate the remaining gift account amounts before 1/1/2025 other than finding different gift recipients?

I don't think so officially.

I have toyed with the idea of getting online and delivering those 1/1/2025 gifts today and then immediately redeeming them... just like I did on Jan 1.

I'm guessing that their systems are not sufficiently sophisticated to prevent me from doing so... or perhaps even ever detecting that I didn't play by the rules.

What is the worst that could happen? They reverse the things that I did that I shouldn't have? And I just plead ignorance and apologize?

 

[Gumby]

Then I am incorrect in thinking that the IBonds I purchased in March ‘22 and April ‘22 — now at 3.38%— will reset in those months in 2024 to the current rate of 3.94% and remain at that point for 6 months?

I thought I understood the rate changes, but it sounds like I am missing something, and I’d appreciate clarification.

Each time the announced rate changes, it applies to new bonds issued during those 6 months and also to bonds that reach their six month anniversary during that period. BUT, you get each rate for six months. So if you buy bonds in May or November, then your rate resets every November 1 or May 1. However, if you buy them in a different month your rates don't reset ON May 1, they reset on the 6 month anniversary of the first day of the month you bought them. That's why I said the rate "after your next reset" instead of on May 1.

So, lets take the bond you bought in April 2022. The issue date is April 1 regardless of the precise day in April that you bought. Those bonds had 0% fixed rates, so you just get the variable rate

Here are your interest rates over time. I show the APR but remember you only get 1/2 of that in a 6 month period.

4/1/22 to 9/30/22 -- 7.12%
10/1/22 to 3/31/23 -- 9.62%
4/1/23 to 9/30/23 -- 6.48%
10/1/23 to 3/31/24 -- 3.38%
4/1/24 to 9/30/24 -- 3.94%
10/1/24 to 3/30/25 -- very likely 0% based on current CPI numbers

In hindsight, it would have been clearer to say "your next rate reset occurring after May 1, 2024. I hope I have straightened out any misunderstanding.

 

[pb4uski]

I don't think so officially.

I have toyed with the idea of getting online and delivering those 1/1/2025 gifts today and then immediately redeeming them... just like I did on Jan 1.

I'm guessing that their systems are not sufficiently sophisticated to prevent me from doing so... or perhaps even ever detecting that I didn't play by the rules.

What is the worst that could happen? They reverse the things that I did that I shouldn't have? And I just plead ignorance and apologize?

I may be wrong about the sophistication of their systems. According to Bard:

What happens in Treasury Direct if I deliver more than $10,000 in gifts to a recipient?

If you attempt to deliver more than $10,000 in Treasury Direct gifts to a recipient in a single calendar year, the following will happen:

1. The gift transaction will be rejected: The system will recognize that the amount exceeds the annual limit and prevent the delivery. You'll receive an error message stating that the recipient's purchase limit has been reached. ...

 

[braumeister]

I may be wrong about the sophistication of their systems. According to Bard:

Yes, I did that accidentally a couple of years ago. It took them nearly six months to catch it, but they did. Cancelled the transaction and sent the money back (with interest).

The mills of the gods grind slowly, but they grind exceeding fine.

 

[4legsgood]

I'm not thrilled my recently purchased I-bonds will have crappy rates looking forward, but we've been 'spoiled' with high inflation, and I can go back to my original thinking. I want to keep a ladder of I-bonds worth about my yearly spend for liability matching to inflation.

 

[Al18]

Wouldn’t it make more sense for the composite rate to hit 0%, then wait 3 months and redeem them with the 3 month interest penalty, which would be 0?

 

[Gumby]

Wouldn’t it make more sense for the composite rate to hit 0%, then wait 3 months and redeem them with the 3 month interest penalty, which would be 0?

Depends on what your alternative investments are. Our last I-bonds were purchased in April 2022. They are in the gift box and can be delivered on 1/1/25, when we will redeem them. Just by dumb luck my final three months of forfeited interest (Oct, Nov, Dec 24) will likely be at 0%. However, we redeemed three I bonds last year, forfeiting 3.38% for three months, and put the money in treasuries yielding > 5%.

 

[pb4uski]

Wouldn’t it make more sense for the composite rate to hit 0%, then wait 3 months and redeem them with the 3 month interest penalty, which would be 0?

No.

Let's say that you bought a $10k i-bond in Apr 2022. As of Jan 1, 2024 it is worth $11,304 but the redemption value after forfeiting 3 months of interest at 3.38% is $11,208 (value as of Oct 1).

As of Jan 1 you can redeem it for $11,208 and doing so forgo 3 months interest at 3.38%. Reinvest the $11,208 in a 12 month TBill at 5% and on Jan 1, 2025 you have $11,768.

Alternatively, if you stay you get 3.38% then 3.94% and then 0% for Oct-Dec 2024 and can redeem for $11,620 on Jan 1, 2025.

$11,620/$11,208 is a return of 3.68%... vs 5%.

$11,768 is better than $11,620.

https://eyebonds.info/ibonds/10000/ib_2022_04.html

 

[RunningBum]

Wouldn’t it make more sense for the composite rate to hit 0%, then wait 3 months and redeem them with the 3 month interest penalty, which would be 0?

That's probably what I'll do for my May 2023 purchase. I'm getting 4.86% right now. In June it'll reset. I'll wait and see what it resets to, but I'll wait until at least Sept to get all of that 4.86% rate, and lose the 3 months of the new rate. Since my fixed rate is 0.90% the composite rate will not go to 0%, but I expect it'll be low.

It's only a $10K investment so not that big of a deal but why keep it if it's earning very little.

I really appreciate the wisdom shared here. https://eyebonds.info/ibonds/home10000.html is a great site to check your specific purchases.


EDIT TO ADD: Hmm, using pb4's math above, I could sell on June 1 (or is it June 2?) for $10,340. Or hold until Sept 1 for $10,464. If I bought a 3 month 5% T bill on June 1 I'd have $10,469. $5 better to sell early. Basically a wash. I'm inclined to sell if I get really get 5% then just in case I miss selling in Sept and start getting the much lower rate.

Edit again. Bad math. I used 1.0125 as my multiplier for 3 months of a 5% bond. It should have been 1.01125, which gives me $10,456. $8 edge to keep the bond until Sept.

 

[Jerry1]

No.

Let's say that you bought a $10k i-bond in Apr 2022. As of Jan 1, 2024 it is worth $11,304 but the redemption value after forfeiting 3 months of interest at 3.38% is $11,208 (value as of Oct 1).

As of Jan 1 you can redeem it for $11,208 and doing so forgo 3 months interest at 3.38%. Reinvest the $11,208 in a 12 month TBill at 5% and on Jan 1, 2025 you have $11,768.

Alternatively, if you stay you get 3.38% then 3.94% and then 0% for Oct-Dec 2024 and can redeem for $11,620 on Jan 1, 2025.

$11,620/$11,208 is a return of 3.68%... vs 5%.

$11,768 is better than $11,620.

https://eyebonds.info/ibonds/10000/ib_2022_04.html

Another way to look at it is that anytime you redeem them your last three months is zero. It’s always about what better option you have to invest the proceeds.

 

[GenXguy]

I would sell mine, but I don't want to generate any interest income so that I can keep my MAGI down for ACA.

 

[pb4uski]

That's a good reason.

 

[Exit 2024]

10/1/24 to 3/30/25 -- very likely 0% based on current CPI numbers

Last 3 months of the year are often have negative CPI-U change, it almost always gets offset and more by first 3 months of the next year for the I-Bond calculation.
I do not see it being different this time.

 

[pb4uski]

Last 3 months of the year are often have negative CPI-U change, it almost always gets offset and more by first 3 month of the next year for the I-Bond calculation. I do not see it being different this time.

And if you are correct that inflation is higher in Jan-Mar wouldn't that mean that rate cuts are further off or perhaps even another rate hike?

 

[Exit 2024]

And if you are correct that inflation is higher in Jan-Mar wouldn't that mean that rate cuts are further off or perhaps even another rate hike?

For I-bonds used non-seasonally adjusted rate change for consecutive 6 months, for decision about Fed rate used seasonally adjusted value and year over year change.
So yes, for next 3 months very likely non-seasonally adjusted CPI-U will have positive change but that is not the value that Feds will be looking into.

 

[Rickt]

Can I sell I bond purchased January 23, 2023 on February 1, 2024?

 

[pb4uski]

^^^ No. But only because you can't "sell" i-bonds.

But you can redeem it on February 1 since at that point you will have held it 13 months (Jan 1, 2023 to Feb 1, 2024). You will lose the last 3 months of interest so will only get interest for 10 of the 13 months that you have held it.

 

[Gumby]

Can I sell I bond purchased January 23, 2023 on February 1, 2024?

You can redeem them after 12 months from the issue date. For bonds purchased any day of a month, the issue date is always the first day of that month.

https://www.treasurydirect.gov/forms/savpdp0039.pdf

 

[BlueberryPie]

For I-bonds used non-seasonally adjusted rate change for consecutive 6 months, for decision about Fed rate used seasonally adjusted value and year over year change.
So yes, for next 3 months very likely non-seasonally adjusted CPI-U will have positive change but that is not the value that Feds will be looking into.

That was the general sentiment yesterday. Note that the seasonally adjusted inflation when up 0.3% Nov to Dec and it was HIGHER than expected, so yes, some people are saying the Fed may not be able to cut rates as soon as they previously indicated.
That's on December alone.

I use my IBonds for inflation protection of my 6-,month emergency fund (not retired, finding a new job would likely take the 6 months). Ibonds are still a good deal for that without chasing yields elsewhere, especially those with a higher fixed rate.

 

[Gumby]

Last 3 months of the year are often have negative CPI-U change, it almost always gets offset and more by first 3 months of the next year for the I-Bond calculation.
I do not see it being different this time.

When I look at that chart, I note that the May 1 adjustment immediately following a fourth quarter with 3 months of negative CPI change is almost always substantially less than the preceding November 1 change. (And how could it easily be otherwise just given the math?) Compare May 2002 and November 2001, or May 2009 and Nov 2008, or May 2015 and November 2014. So my conclusion is that it doesn't "almost always get offset and more". But I suppose we'll find out who's right in April.

 

[Rickt]

Thank you @pb4uski and @Gumby.
I value your contributions to this forum!!

 

[BlueberryPie]

^^^ No. But only because you can't "sell" i-bonds.

But you can redeem it on February 1 since at that point you will have held it 13 months (Jan 1, 2023 to Feb 1, 2024). You will lose the last 3 months of interest so will only get interest for 10 of the 13 months that you have held it.

you can redeem in Jan 2024 is you bought in Jan 2023, after 12 months, not 13 months. The rest of the info is correct

 

[Rickt]

Thanks @Blueberry Pie

 

[pb4uski]

you can redeem in Jan 2024 is you bought in Jan 2023, after 12 months, not 13 months. The rest of the info is correct

But he specifically asked about selling/redeeming on February 1, NOT January 1, 2024 and February 1 would be 13 months, would it not?

Can I sell I bond purchased January 23, 2023 on February 1, 2024?