I-Bonds: Buying in October vs. November (Part 2)

[Continued from Part 1.]

Previously I went over the return that I could expect from buying I-type Savings Bonds at the end of October. While the numbers for buying in October are pretty much set, predicting the rates for buying in November will require a lot of guessing and hand-waving.

Short answer: It’s a toss-up. I’m buying half now and half next month.

Long answer:

If you buy at the end of November, for the first six months you’ll get the rate I predicted in my post Predicting The Upcoming New I-Bond Rates – 6.72-7.13%. There is a variable because you don’t know what the new fixed rate will be. I strongly believe it will be between 1.0-1.4%. If I had to pick, I would pick 1.3%, due to the fact that they usually want to follow certain Treasury rates which have been rising, but they won’t want to raise it too much since inflation is already so high. So,

11/05-4/06: 6.72-7.13%

After that, whatever fixed you got in November stays with the I-bond forever. You’ll then have to predict the inflation change, according to the CPI-U, from September to March. There’s lots of variables – the Iraq War, Katrina, Seasonal Issues, the Economy, Greenspan, etc, but I think inflation is going to be an issue for a while. Again, I am just a layperson.

The question is, is it going to be bigger than about 3.6%?

5/06-10/06: 1.0 to 1.4 + Greater or Less than 3.6%?

I don’t know. I think so, but I also don’t want to give up the great guaranteed rate for buying in October. My solution? Hedge my bets, and do both. I’m going to buy half at the end of October, and half at the end of November. Now to figure out how much I want to put in…

Comments

  1. Ken @ bankdeals says:

    There’s a useful page at the treasury dept that lists the past rates (http://www.publicdebt.treas.gov/sav/sbirate2.htm)

    They never seemed to have tried to balance the fixed rates and the inflation rates. For example, in May 2000, the fixed rate went from 3.4 to 3.6%. The semi-annual inflation rate also went up from 1.76 to 1.91% (the highest it has ever been). So I think a rise of the fixed rate from 0.1% to 0.2% is probably a good bet.

  2. Unless the fixed rate changes, wouldn’t both your Oct. I-Bonds and your Nov. I-Bonds have the same rate of return?

  3. Jim – Only for six months. If you buy in October, you know exactly what the returns will be for the next 12 months.

    If you buy in November, you will only know your fixed rate and the variable for the 1st six months. The 2nd six months will depend on future inflation data.

  4. I set up my first buy for Monday. I am stumped as to how to add these to Quicken. Vexed even (and gasp! google didn’t really help me)

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