Just a reminder (though most here probably don't need it) that I Bonds bought by the end of April will earn 3.06% for the first six months, with subsequent rates adjusted based on the CPI. The following 6 mos. should be over 1%, based on the CPI so far. Since they can't be sold for the first year, the 12 month rate should be between 2 and 3%. Limited to $10,000 per SS#, and there is a 3 month interest penalty if sold before 5 years.
I Bond Rate Reminder(11 posts)
The prevailing fixed rate of the I-Bond is 0.0% (as it has been since Nov. 1, 2010) and the inflation adjustment rate is 2 x 1.53%, which accounts for ALL of the current yield. This latter is CPI derived and will adjust May 1. Any I-Bond bought now (i.e. in April) will also adjust on May 1. It will not necessarily earn 3.06% for the next 6 months. Indeed, those who purchased I-bonds in May of 2011 saw their yield drop from 4.6% to 3.06% at the Nov. 1, 2011, inflation adjustment. I would strongly encourage anyone contemplating the purchase of an I-Bond to wait until May 2 to see what the new rate will be.
Isn't the preliminary CPI number available before may 1st? I think you can guess at whether the rate will go up or down before may 1. I'll check my notes when I get home.
Maus is talking about waiting to see what the fixed rate is, rather than the CPI number. Fixed rate of 0% means your I-bond is only tracking inflation with no premium. Back in 2000-2002 timeframe, the fixed rate was over 3%, so those I-bonds are yielding considerably better than today's I-bonds.
As I understand it (and I could be wrong here, this is the Treasury after all, and any correction is welcome) is that bonds purchased by April 30 will pay the composite rate (0 base and 3.06 CPI) for six months, after which it will reset:
The semiannual inflation rate is determined each May 1 and November 1. Each semiannual inflation rate applies to all outstanding I Bonds for six months.
Fixed rates and semiannual inflation rates are combined to determine composite earnings rates. An I Bond's composite earnings rate changes every six months after its issue date. For example, the earnings rate for an I bond issued in March 1999 changes every March and September.
If my understanding is correct, i.e., that the rate as up to April 30 is good for six months, then even a reset base and CPI of zero for the next six months would be an annual rate of 1.53
@GTOO-sorry, read too quickly (actually at work today). Just tracking inflation is still better than most places to park cash where you want to guarantee principle (like our upcoming college costs).
@hoplite-I understand it the same way you do but I'm wrong more than I'm right on this board. Haven't cashed any in so I can't say for certain.
You are correct (and I amend my post to that extent) that an I-Bond bought now (April) will not change rate until October. But if the inflation component is more than 2 x 1.53%, you will be better off buying on May 2, even if the fixed rate remains at 0.0% Of course, I am hoping that the fixed rate will be higher (likely a delusional hope). And I expect the inflation component to be higher, given that CPI-U was 2.9% in February:
It is a safe bet that a bond bought on May 2 will yield >4.0% until Nov. 1, while one bought on or before April 30 will yield 3.06% until Oct. 1. You might be surrendering almost 100 basis points because of your haste.
Thanks! That does clarify the situation. It also fits my personal approach of being tardy rather than hasty :)
According to that thread the rate is dropping to 2.2% so buying by 4/30 is best. (actually at that rate paying off my mortgage is a better return :( )
Well, I see that March 2012 CPI-U was down to 2.7% from February's 2.9%; so I forecasted the trend wrong. I don't know where the ER forum is getting the 2.2%, since the I-Bond inflation adjustment occurs on May 1 and the CPI-U for April isn't out until May 15, it should be 2.7% -- which is, alas, less than 3.06%; so to get the 30 bp for four more months, buy before 4/30. A rough, back-of-napkin calculation shows that on the max. $10K purchase, your timing would yield approximately $10 more dollars.
This is just depressing. I am going to find a nice dividend stock as an alternative. ABT is looking good at recent valuations, yield on cost today of about 3.4%
"your timing would yield approximately $10 more dollars"
@Maus--Depressing is right. We've probably already wasted more than $10 in productivity discussing the rate.
I moved some money today in case we move to DC. The woman at the bank thought I was "wasting it" where it was and suggested I open a temporary savings account for it. I said "OK, I'll bite, how much interest does it pay?" She said .14%! I couldn't believe she said it with a straight face.
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