As predicted in October, the new inflation portion of I-Bonds is 3.12% and the new fixed rate is 1.4%, for a total of 4.52%. This is still lower than what is available via Treasury Bills and online savings accounts, so those of us with older Savings Bonds should really think about cashing them in. But when is the best time to do it? Here how I try to figure it out, and a quick calculator that does it for you.
Should you redeem?
But first, let’s make sure you want to redeem. I-Bonds have several tax-advantages:
Interest is exempt from state and local income taxes (although so is T-Bill/T-Bond interest)
Thinking about moving your cash to a higher interest rate? There are a lot of banks paying 5% interest or more out there. Many are online, but some might already be in your neighborhood.
Next, use this handy calculator to find out how much more money you’ll be looking at:
It’s open enrollment season again, which means it’s time to decide on your benefits and spending account contributions. PayCheckCity has a variety of tools for simulating what your take-home pay would be if you added disability insurance, increased your FSA amount, and so on.
It can also be a good time to check your paystubs and see if you want to make any other changes. Maybe you want to increase your cashflow, or see if you can afford to put more away in your 401k. You can also check if you’ve already paid as much taxes so far this year as you did last year. If so, you could underwithold taxes on purpose and stick the difference in an interest-bearing account to make a few extra bucks. You can then wait until April 15th to pay up what you owe without penalty. Uncle Sam makes millions every year on people who overwithold their taxes – why not flip the tables? Hint: If you want to stop withholding as much, you can put up to 10 allowances on your W-4 without IRS notification. You can put as many allowances as you want, but I wouldn’t go totally nuts.
What do you get when you combine the real estate listings on Craigslist and cross-reference them on Google Maps? HousingMaps.com. Only for major metro areas, but it’s still a neat tool.
Craigslist seems to have much more extensive listings for rentals than houses for sale, but more and more real estate agents are putting some of their listings to join the For Sale By Owner crowd. A friend of mine just bought a FSBO house off of Craigslist, and I’m told he got a good deal. Mostly it’s just another way to waste time browsing properties I can’t afford, but who knows, you may get lucky too.
As I’ve mentioned before, I use Yodlee, an account aggregation service, to track all my numerous accounts on a daily basis. You give them all the logins and passwords of your individual financial accounts, and it logs into all the sites for you. In the end you have a real-time view of all your balances and recent transactions, all neatly on one page.
Of course, many people are rightfully afraid that this leads to one point of access. If somehow Yodlee is hacked, they get all your information instead of just that of one bank. This is true, but I look at it a little differently because I have a lot of accounts. Read the rest of this entry…
In my previous post on Calculating and Comparing Treasury Bill Returns, it was pointed out that my APY calculation was incorrect because the way T-Bills work, you can’t actually reinvest all the interest into the next T-Bill. That is true, but what you can do is set your T-Bill to fund and deposit via another interest-bearing account like ING Direct, Emigrant Direct, or HSBC Direct. This way, you can still invest in consecutive 28-day T-Bills, and anything not rolled over to the next T-Bill is still earning decent interest.
But, we still want to compare APYs! So, what was needed was a calculator that would take all this into account. So here it is:
28-Day T-Bill APY Calculator:
Principal invested per $1,000 par value: $
.
T-Bill interest earned: $
Bank interest earned on excess interest: $ The approximate total APY is: %
Example
Let’s do an example. Let’s take the most recent T-Bill results for a $1,000 28-day T-Bill and say you set it to reinvest every 28 days. The investment rate is 4.655%. Now, let’s say you fund via Emigrant Direct, currently at 4.50% APY. Using the APY to APR calculator3 and the fact that ED compounds daily, we get an APR of 4.401%.
We input these values above. It spits out that for each $1,000 T-Bill you buy, you’ll pay $996.43. Actually, you’ll pay $996.44, but that’s due to rounding errors2. No big deal.
So when you buy a 28-day T-Bill, $996.44 will be taken out of your Emigrant on the next Thursday after the auction you participate in.
28 days later on another Thursday, your ED account will get a deposit of $1,000 and also a withdrawal of $996.44. $3.56 cents is left behind and earns interest at Emigrant. 28 later again, the same thing happens. Another $3.56 is left behind. This continues for a year and 13 T-Bills5 mature in that 364 days. At the end of this theoretical1 year, you’ll get approximately ($46.38 from T-Bill + $0.95 from Emigrant =) $47.33 in interest from your $996.44 initial investment. That’s an approxmiate APY of 4.75%.
It’s not perfect, but it’s something more accurate than investment rate that you can now use to compare with other online bank APYs. Note that this is pretty close to the APY that would be calculated assuming full interest reinvestment – 4.76%.
Finally, this does not take into account the tax benefits of T-Bills for those that are in states that charge state or local income taxes.
Assumptions and Caveats
1) The calculator assumes that the current T-Bill rate is extended out for an entire year. This cannot happen in real life as the rate is determined by auction every week. We are just extrapolating to find APY for comparison purposes. Banks change rates throughout the year as well.
2) There are plenty of round-off errors since I am allowing you to input the investment rate, which is already rounded off.
3) I again note that I am asking for the APR of the savings account you will be using, not APY. Hence, my APY to APR Calculator.
4) I am assuming that the bank interest compounds every 28 days for simplicity. Some banks compound daily, some compound monthly. It really doesn’t matter that much.
5) In actuality, there are 13.0357 (28×13= 364) T-Bills.
These days you usually get APY (annual percentage yield) from banks, but there are some times when you want the APR (annual percentage rate), which does not take into the compounding of interest as it is earned. For some reason I could not find an APY to APR calculator online, so… I made one myself. Here are the definitions that the calculator is based on:
Using the rate-chasing breakeven time formula posted previously, here is the easy-to-use JavaScript Calculator version to help you decide whether you should move your money and chase the higher rate.
Note that it uses APR. Only know APY? Then please see my APY to APR calculator first. If that’s too much trouble, note that if you use APYs for both rates your final answer will be very close anyways.
I whipped out my ancient how-to-make-a-website book, and made a simple but handy JavaScript calculator for calculating the equivalent bank CD rate for a given T-Bill or Savings Bond rate, as the interest from them are exempt from local and state taxes. This uses the rate conversion formula previously given. Remember, marginal means the tax rate at which your last earned dollar is taxed. Please try it out and let me know if something’s broken:
Calculator:
For example, at my 25% Fed and 9% State tax rates, the current 4.14% rate for a 4-week T-Bill is the equivalent of a 1-month bank CD earning 4.70% annualized.
Note: The above calculator does not assume that you will itemize deductions and deduct your state taxes from your federal taxes. Even if you do itemize, I would note that everyone gets the standard deduction, so it’s not necessarily fully deductible.
If you apply to as many offers as I do, you can’t afford the ink to print all those Terms and Conditions out. But it is really critical to save the details of everything you apply for, in case you need to fight for your money later. Companies change offers or take down their offer websites all the time. The solution? A free PDF Printer Driver called PDFCreator. Once installed, just do File > Print like usual but choose ‘PDFCreator’ as your printer, and out comes a nice Adobe Acrobat PDF File! The time you printed it out is even included. Also great for saving online statements.
Example: The 0% APR Discover card offer here has no mention of a balance transfer fee in the Terms and Conditions. But now, I have a .PDF of the complete T and C’s saved on my hard disk if there is any dispute.
As other bloggers have mentioned, USA Today is currently doing a six-week series on how to go on a “Financial Diet“. Nothing ground-breaking, but it’s a pretty good read with stories from real-life families and tips on how to reduce debt and save more. Last week (Week 2), the focus was How to Make (and stick to) a Budget, which is exactly what I’m trying to do right now. Read the rest of this entry…
Ok, after digging a little bit more about how to manually import my transactions from VirtualBank and Presidential Bank into Quicken 2005, I find out… I can’t. Not only that, the reason is just stupid greed in my opinion. Both Microsoft Money and Quicken 2005 use the OFX format for exchanging financial data, but Money still allows you to import data using the popular .pif format. Quicken? Not only does it not allow you to import data using the .pif at all, it evens cripples your software to not accept OFX files unless your bank pays them. Read the rest of this entry…
Read the rest of this entry…
As I’ve mentioned before, I use 
In my previous post on 
