The new fixed rate for I-type Savings Bonds was announced today, and it has decreased from 1.2% to 1.0%, matching the lowest historical fixed rate. This was within my prediction of 1.0 to 1.4%, but one has to wonder if all the mid-October buzz caused them to make the rate lower. Oh well, I bought $5,000 worth in October with the higher fixed rate, so I have until the end of this month to decide whether to buy more. No need to buy now, since they credit you interest for the whole month anways as long as you buy it within November.
If you do buy in November, it will earn 6.73% for 6 months, then 1.0% + a variable rate depending on future inflation adjusted every 6 months. You have to hold at least a year, and you lose the last 3 months interest if you redeem within 5 years.
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I bought today and am setting up an automatic purchase monthly for years to come. I still don’t think a person can go wrong with I bonds.
I’ve been an aggressive investor for years and am now starting to lean towards fixed investments since hubby and I are now retired.
Why would you buy today? when you would still get the entire month’s interest if you bought on 11/30?
A quick tip for the previous poster: set up those automatic purchases for the 28th of each month rather than the 1st of the month!
The reason is that no matter what time of the month you purchase your I-Bonds, they are always dated the 1st of the month anyway and you are credited that month’s interest. So why give away nearly a month’s interest that you can be making somewhere else, like an ING or Emigrant Direct account? (I said the 28th above because I’ve seen it posted elsewhere that it can take a couple of days sometimes for the transaction to process.)
Also, if you end up only keeping your I-bond for a shorter term than 5-years, then buying at the end of the month effectively reduces the 3-month penalty to something closer to a two-month penalty, since you really didn’t earn that whole first month’s interest anyway!
Hope this was helpful! Enjoy your retirement!
Thanks! I bought 5,000 in Oct. and I think I may buy 10,000 in Nov. If I only keep the 10,000 for a short time I still get a great rate(I still have 50,000 on no interest CC). The way I see it is that if I keep the 5,000 in for a while I’ll have 1.2% + inflation. The 10,000 I’ll keep until the inflation rate goes down.
hey guys,
can one of you I-bond wizzes explain or link to a good explanation of how to buy I-bonds and what to look for?
do you always buy straight from the treasury’s site? or can you buy them through schwab or etrade? how do you set up auto-purchasing?
any tips/tricks/gotchas/or typical sticking points for newbies?
thanks as always for the great info mmb!
eek, sorry about all the spaces 😮
Are you able to calculate the minimum return on an i-bond purchased in late november, cashed out in 12 months? i suspect, even if there was no inflation over the next year it would still beat out 1 year CDs if you can earn 6.73% for the first 6 months.
james: minimum return for I Bonds is their fixed portion, i.e. 1% for November series. Given their known return of 6.73% for the first 6 months (Nov-Apr) and 1% return for next 6 months (May-Oct ’06) they will end up with 3.93% return over the first year. This is the formula:
Investment worth in 12 months = (1 + 0.0673/12)^6 * (1 + 0.01/12)^6 ~= 1.0393, which is 3.93% return.
This is only minimum though which is very unlikely to be true, and mind local tax exemption (multiply 3.93 according to Jon’s recent formula) and you’ll end up slightly above 4% depending on your tax rates.
Oh, sorry, I forgot 3 last months’ penalty if you want to cash it out in a year. This changes last power in the formula from 6 to 3 and 3.93 rate to 3.67%. Yeah, 0.26 percentage points less.
Haven’t tried the numbers myself, but don’t forget that you if you buy late in the month, you’ll basically be getting interest over 11 months instead of 12.
i m still confused..
i have 10K in ED..i wanted to buy the t-bill at the end of the nov…can some expert..tell me whther i m good to keep the money in ED or buy 10K worth T-bill and i would be getting only 9 months int. as i would be cashing it at the end of the yr..
Ravi:
Just to clarify, where other posters were talking about I-Bonds, you’re talking about T-Bills vs. an Emigrant Direct account. I hope the text below clarifies your decision regarding the three items:
Emigrant Direct
LIQUIDITY: fully liquid, you just wait the day or two for it to transfer back to your linked account. If you may need your money at any time, keep it in ED!
RATE: Currently 4% – great for a liquid account! We can expect ED’s rate to rise as interest rates rise.
T-Bill
LIQUIDITY: like a bank CD but from the treasury. 4-week, 13-week, and 26-week terms are currently offered from the Treasury Direct website. You can pay $45 to sell it early if you really need to, but with such short terms you can probably plan your way around that.
RATES: usually competitive with equivalent-term bank CD’s, and usually beats them hands down if you’re in a state with a high tax like I am. (However, you’re locked in for the term, whereas ED would go up if rates rise.)
I-Bond
LIQUIDITY: liquidity-wise, it’s like a 1-yr CD that after the first year turns into a money market account with a bunch of extra rules. Don’t invest money in the I-Bond that you’ll need within the year!
RATE: You can only know an I-Bond’s yield for the entire year before your purchase twice a year: late October and late April. So last week you would have had more information to work with, sorry. I’d recommend, considering the low fixed rate portion right now, only purchasing the I-Bond if you intend to hold for several years and let the interest compound. For the shorter term, a CD or T-bill might be the safer bet right now, since we don’t know right now what the I-bond rate will do next May.
hi dan
thanz a lot..
i was a bit confused between whther to keep my 10k in ED or buy I-bonds at the end of november..i m new to savings..just a grad student getting ready fr real world..
i dont need the money for 1 yr i m sure about it..so should i keep in ED till next nov or buy I-bonds at the end of nov..??
thanz a lot
ravi
If you know for sure you won’t need the money for 1 year, then there’s probably a better place to park it than the liquid account.
This thread might ease worries about not knowing the 2nd 6-month rate for I-Bonds:
link
(Basically, these guys are saying that the 2nd rate would only need to top 3% to beat current CD rates. Of course, that would vary by state.)
With the disclaimer that we don’t know some pieces for sure, I feel fairly comfortable recommending the I-Bond over leaving $$ you won’t touch for a year in E.D. for 12 months. But if you’re in a no-tax state, run the numbers with a high-yielding 1-yr CD as well to compare.
Good luck,
Dan