Savings I Bonds May 2016 Interest Rate Update

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savbonds4

New fixed rate as of May 1st, 2016 is 0.1%, the same as the last 6-month period. The variable inflation-indexed rate is 0.16% (as was predicted). Thus, buying a new I Bond between May 2016 through October 2016 will earn a composite rate of 0.26% for the first six months, and after that 0.1% plus the current inflation-indexed rate updated every 6 months.

Original mid-April post below:

New inflation numbers were just announced, which allows us to make an early prediction of May 2016 savings bond rates a couple of weeks before the official announcement on May 1st. This also allows us the opportunity to know exactly what a April 2016 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New Inflation Rate
September 2015 CPI-U was 237.945. March 2016 CPI-U was 238.132, for a semi-annual increase of 0.0786%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be approximately 0.16%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Purchase and Redemption Timing Reminder
You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time though, since if you wait too long your effective purchase date may be bumped into the next month.

Buying in April
If you buy before the end of April, the fixed rate portion of I-Bonds is guaranteed to be 0.1%. You will also be guaranteed the current variable interest rate of 1.54% for the next 6 months, for a total rate of 0.1 + 1.54 = 1.64%. For the 6 months after that, the total rate will be 0.1 + 0.16 = 0.26%. 1.64% for 6 months, then 0.26% for 6 months.

Let’s say we hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on April 30th, 2016 and sell on April 1, 2017, you’ll earn a ~0.97% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. This average rate is somewhat lower than what is currently available from the highest 1-year bank CD rates (ex. 1.25% APY at Synchrony Bank as of 4/15/16), but matches the APY of most online savings accounts.

Buying in May
If you wait until May, right now I can only estimate a fixed rate of between 0% and 0.2% plus the variable rate of 0.16% for a composite rate of 0.16 to 0.36% for the first 6 months. The next 6 months will be the sum of an unknown fixed rate plus an unknown rate based on future inflation. Given this low rate for the first 6 months, I would rather buy in April than May, otherwise I would wait and check back in during mid-October 2016 to see if inflation has picked up.

Existing I-Bonds and Unique Features
If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate + variable rate (minimum floor of 0%). Again, this new rate update is low, but due to their annual purchase limits, you should still consider their unique advantages before redeeming them. These include ongoing tax deferral, exemption from state income taxes, and being a hedge against inflation (and even a bit of a hedge against deflation).

Annual Purchase Limits
The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund (see IRS Form 8888). If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings I Bonds November 2015 Interest Rate

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

savbonds4

New fixed rate for November 2015 is 0.1%. The most recent official announcement states that effective November 2015, the new fixed rate on Series I savings bonds is 0.1%, up from the previous 0.0%. The variable inflation-indexed rate is 1.54% (as was predicted). Thus, buying a new I Bond between November 2015 through April 2016 will earn a composite rate of 1.64% for the first six months, and after that 0.1% plus the current inflation-indexed rate updated every 6 months.

If you theoretically bought on November 30th, 2015 and sell on November 1st, 2016, at the very minimum you’d earn a ~.89% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. As long as inflation isn’t zero or negative over the next 6 months, you’ll earn more. Not a bad minimum short-term return for what could be a good long-term investment. I’m buying some after mid-November (don’t want to cut it too close to the deadline).

Existing I Bonds will earn their fixed rate plus the semi-annual inflation rate (adjusts every 6 months based on the original purchase date, eventually will be 1.54%).

Original mid-October post below:

New inflation numbers were announced, which allows us to make an early prediction of November 2015 savings bond rates before their official semi-annual announcement on the 1st of the month. This also allows us the opportunity to know exactly what a October 2015 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New Inflation Rate
March 2015 CPI-U was 236.119. September 2015 CPI-U was 237.945, for a semi-annual increase of 0.77%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be approximately 1.54%. The new fixed rate won’t be announced until November 1st, but unless something very extraordinary happens, this is going to be a very accurate prediction. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be different.

Purchase and Redemption Timing Reminder
You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time though, since if you wait too long your effective purchase date may be bumped into the next month.

Buying in October
If you buy before the end of October, the fixed rate portion of I-Bonds will be 0%. You will be guaranteed the current variable interest rate of -1.60 for the next 6 months, for a total rate of zero (it can’t be negative). For the 6 months after that, the total rate will be 1.54%. Add in the last-3-months-of-interest penalty for holding less than 5 years, and I just wouldn’t buy in October.

Buying in November
If you wait until November, you will get 1.54% plus an unknown fixed rate for the first 6 months. The fixed rate is likely to be zero. There may be a small chance it is 0.1%, and an even smaller chance it will be 0.2%. Every six months, your rate will adjust to the fixed rate plus a variable rate based on inflation. At least here if inflation picks up, you’ll get a hiked rate earlier than versus buying in October.

If you buy on November 30th, 2015 and sell on November 1st, 2016, at the very minimum you’ll earn a ~.84% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. As long as inflation isn’t zero or negative over the next 6 months, you’ll earn more. That still isn’t a slam dunk short-term play, but if you want to buy it anyways for a long-term investment, it’s not bad. Keep your money in an online savings account earning 1% or more until then.

Existing I-Bonds
If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate + variable rate (minimum floor of 0%). Again, this new rate update isn’t terribly high, but due to their annual purchase limits, you should still consider their unique advantages before redeeming them. These include ongoing tax deferral, exemption from state income taxes, and being a hedge against inflation (and even a bit of a hedge against deflation).

Annual Purchase Limits
The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund (see IRS Form 8888). If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings I-Bonds May 2015 Interest Rate Update: Negative 1.6% Variable

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

savbonds4New inflation numbers were just announced, which allows us to make an early estimate of May 2015 savings bond rates before their official semi-annual announcement. This also allows us the opportunity to know exactly what a April 2015 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New Inflation Rate
September 2014 CPI-U was 238.031. March 2015 CPI-U was 236.119, for a semi-annual decrease of 0.80%. Yikes! Deflation! Using the official formula, the variable component of interest rate for the next 6 month cycle will be approximately -1.60%. The new fixed rate won’t be announced until May 1st (speculation below). You add the fixed and variable rates to get the total interest rate, but there is minimum composite rate of 0%. If you have an older savings bond, your fixed rate may be different.

Purchase and Redemption Timing Reminder
You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time though, since if you wait too long your effective purchase date may be bumped into the next month.

Buying in April
If you buy before the end of April, the fixed rate portion of I-Bonds will be 0%. You will be guaranteed the current variable interest rate of 1.48% for the next 6 months, for a total rate of 0 + 1.48 = 1.48%. For the 6 months after that, the total rate will be 0%. Let’s say we hold for the minimum of one year and pay the 3-month interest penalty. If you buy on April 30th, 2014 and sell on April 1, 2015, you’ll earn a ~0.81% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes.

This average rate is lower than what is currently available from the highest 1-year bank CD rates (ex. 1.23% APY at Synchrony Bank as of 4/17/15). Given the eventual 6 months of 0% that you will be facing, I may put my cash in a competitive savings account or CD until mid-October and November 2015 to see if inflation has picked up again by then.

Buying in May
If you wait until May, you are virtually guaranteed to gain a composite rate of 0% for the first 6 months. The next 6 months will be the sum of an unknown fixed rate plus an unknown rate based on future inflation. My best guess for the fixed rate is 0.0%, unless somehow the Treasury suddenly feels pity for us individual savers (doubtful). Given that the only guaranteed thing you’ll get is 6 months of zero interest, I would rather buy in April than May, but otherwise I’d still check back in during mid-October 2015 to see if inflation has picked up.

Existing I-Bonds
If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate + variable rate (minimum floor of 0%). Unless you bought your I Bond before November 2002, you will not be earning any interest for at least 6 months. For now, I think I will still hold my existing I Bonds and see what happens at the next update. I still value their unique advantages like ongoing tax deferral, exemption from state income taxes, and being a hedge against inflation (and even a bit of a hedge against deflation).

Annual Purchase Limits
The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings I-Bonds November 2014 Interest Rate Officially Announced

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

savbonds4Update: The official announcement states that effective November 1st, the new fixed rate on Series I savings bonds is 0.0%, down from the previous 0.1%. The variable inflation-indexed rate is 1.48% (as was predicted). Thus, buying a new I Bond between November 2014 through April 2015 will earn a composite rate of 1.48% for the first six months, and after that 0% plus the current inflation-indexed rate updated every 6 months.

Original post below:

Savings bonds offer a unique opportunity for individuals to buy an investment that is closed to large institutional investors. Compare the rates on these savings bonds to what you’re earning on your FDIC-insured bank deposits or even your TIPS and bond mutual funds, and you may find them a good addition to your portfolio.

Since inflation-linked savings bonds (“I bonds”) are based on CPI numbers announced two weeks earlier, we can make predictions about upcoming savings bond rates before their official announcement. This also allows us the opportunity to know exactly what a current bond purchase will yield over the next 12 months, instead of just 6 months.

New Inflation Rate
March 2014 CPI-U was 236.293. September 2014 CPI-U was 238.031, for a semi-annual increase of 0.74%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be approximately 1.48%. The new fixed rate won’t be announced until November 1st (speculation below). You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be different.

Purchase and Redemption Timing Reminder
You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time though, since if you wait too long your effective purchase date may be bumped into the next month.

Buying in October

If you buy before the end of October, the fixed rate portion of I-Bonds will be 0.1%. You will be guaranteed the current variable interest rate of 1.84% for the next 6 months, for a total rate of 0.1 + 1.84 = 1.94%. For the 6 months after that, the total rate will be 0.1 + 1.48 = 1.58%. Let’s say we hold for the minimum of one year and pay the 3-month interest penalty. If you buy on October 31st, 2014 and sell on October 1st, 2015, you’ll earn a ~1.49% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. That is better than any 1-year bank CD that I can find right now, keeping in mind the liquidity concerns and the purchase limits. If you hold for longer, you’ll be getting the full 1.76% over the first year.

Given the combination of current low rates and the fact that you lose the last 3 months of interest (again, for holding less than 5 years), it might be better to wait long enough to grab 12 full months of interest by holding for 15 months (14 buying late). If you buy on October 31st and hold until January 1st, 2016, you’d achieve an annualized return of ~1.51% over 14 months. (Check my math.)

Buying in November

If you wait until November, you’ll give up the opportunity to lock in the 0.1% fixed rate from April. Instead, you will get 1.48% plus an unknown fixed rate for the first 6 months. The next 6 months will be the sum of the same unknown fixed rate plus an unknown rate based on future inflation. If there is high inflation for the next 6-month period, buying in October may get you a higher rate sooner. My best guess for the fixed rate is that it will be somewhere between 0.0% and 0.2%.

As for my decision, I already maxed out my contribution limits for 2014 back in April to lock on the 0.2% fixed rate.

Existing I-Bonds
If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate + variable rate. Even at a low or even zero fixed rate, your existing savings bonds are paying more than current savings accounts and will continue to be hedged against inflation, so weigh carefully whether or not to redeem them.

Annual Purchase Limits
The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds. I’m keeping all of mine for the foreseeable future, due to their tax deferral possibilities and other unique advantages.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings I-Bonds May 2014 Interest Rate Update: 0.1% Fixed, 1.84% Variable

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

savbonds4Update: The official announcement states that effective May 1st, the new fixed rate on Series I savings bonds is 0.1%. The variable inflation-indexed rate is 1.84% (as predicted), making a composite rate of 1.94% for the first six months. After that, you will earn a composite rate of 0.1% plus the current inflation-indexed rate updated every 6 months.

Original post below:

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My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


US Savings Bonds November 2013 Update

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One more quick savings bond update… the official rate for new I Savings Bond was announced and the variable rate is indeed 1.18% but the fixed rate was a surprise at 0.20%. It’s still very small, but the last time we got a rate slightly above inflation was May 2010.

This means that if you buy a I Savings Bond from November 2013 to April 2014, you will earn 0.20% + a variable rate based on inflation updated every 6 months. The first six month variable rate is 1.18%, so your total rate for the first six months is 1.38%.

Short-term CD replacement? If you wanted to use this bond like a short-term CD, at the very minimum you would be guaranteed 6 months at 1.38% and then 0% after that. If you assume you buy at the end of November and hold for 11 months to maximize interest, with the 3-month early withdrawal penalty your effect annual rate would be approximately 0.75%. That’s not a bad floor considering that the minimum scenario would only occur if we had mild negative inflation (deflation).

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My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings I-Bonds September/October 2013 Rate Speculation

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Update 11/3/13: The new rates for November 2013-April 2014 are 0.20% fixed and 1.18% variable. See details here.

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My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings I-Bonds May 2013 Upcoming Rate: 1.18%

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

New inflation numbers for March 2013 were just announced, so it’s time for the usual semi-annual update and rate predictions.

New Inflation Rate
September 2012 CPI-U was 231.407. March 2013 CPI-U was 232.773, for a semi-annual increase of 0.590%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be approximately 1.18%. The new fixed rate is nearly guaranteed to be zero, so the total rate will be 1.18% as well. If you have an older savings bond, your fixed rate may be different.

Purchase and Redemption Timing Reminder
You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time though, since if you wait too long your effective purchase date may be bumped into the next month.

Buying in April

If you buy before the end of April, the fixed rate portion of I-Bonds will be 0.0%. You will be guaranteed the current variable interest rate of 1.76% for the next 6 months, for a total rate of 0 + 1.76 = 1.76%. For the 6 months after that, the total rate will be 0.0 + 1.18 = 1.18%. Let’s say we hold for the minimum of one year and pay the 3-month interest penalty. If you buy on April 30th and sell on April 1, 2013, you’ll earn a 1.28% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. This is better than any 1-year bank CD that I can find right now, keeping in mind the liquidity concerns and the purchase limits. If you hold for longer, you’ll be getting the full 1.47% over the first year.

Given the combination of current low rates and the fact that you lose the last 3 months of interest (again, for holding less than 5 years), it might be better to wait long enough to grab 12 full months of interest by holding for 15 months (14 buying late). If you buy on April 30th and hold until July 1st, 2014, you’d achieve a annualized return of ~1.26% over 14 months. After that, you can see what the new rates are and decide whether to keep holding them.

Buying in May

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My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings I Bonds September/October 2012 New Rate 1.76%

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

New inflation numbers were just released for September 2012, so here’s the usual semi-annual update.

New Inflation Rate
March 2012 CPI-U was 229.392. September 2012 CPI-U was 231.407, for a semi-annual increase of 0.88%. (CPI-U increased 2.0% over last 12 months.) Using the official formula, the variable interest rate for the next 6 months will be approximately 1.76%.

Purchase and Redemption Timing Tips
You can’t redeem savings bonds until after 12 months, and any redemptions within 5 years incur a interest penalty of the last 3 months of interest. A known “hack” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month. It’s best to give yourself a little buffer time though, as if you wait too long your effective purchase date will be bumped into the next month.

Buying in October
If you buy before the end of October, the fixed rate portion of I-Bonds will be 0%. You will be guaranteed an variable interest rate of 2.20% for the next 6 months, for a total rate of 0 + 2.20 = 2.20%. For the 6 months after that, the total rate will be 0.0 + 1.76 = 1.76%. Let’s say we hold for the minimum of one year and pay the 3-month interest penalty. If you buy at the end of October 2012 and sell at the beginning of October 2012, you’ll earn a 1.68% annualized return for an 11-month holding period, although you may want to hold it longer if the rates stay higher than that of other available safe investments. This is much better than any 1-year FDIC-insured bank CD available right now, keeping in mind the lack of early withdrawals and purchase limits.

Given the combination of current low rates and the fact that you lose the last 3 months of interest (again, for holding less than 5 years), it might be better to wait long enough to grab 12 full months of interest by holding for 15 months (14 month holding period if buying late). If you buy at the end of October and hold until January 1st, 2014, you’d achieve a annualized return of ~1.70% over 14 months. After that, you can see what the new inflation rates are and decide whether to keep holding them.

Buying in November
If you wait until November, you will get a new unknown fixed rate + ~1.76% for the first 6 months, and an unknown rate based on ongoing inflation after that. Based on the current market rates of Treasury Inflation-Protected Securities (TIPS), it is almost certain that the new fixed rate will remain zero. So you’ll get 1.75% for 6 months for certain. My personal opinion is that you might as well lock on the guaranteed above-market rates for 12 months by buying in October instead of buying in May. If rates spike, you’ll eventually get the benefit of any higher rates eventually in the future anyway.

Existing I-Bonds
If you have an existing I-Bond, the rates reset every 6 months (depending on your purchase month). Your bond rate = your specific fixed rate + variable rate. Even at a low or even zero fixed rate, your existing savings bonds are paying much more than current savings accounts and will continue to be hedged against inflation, so weigh carefully whether or not to redeem them.

Annual Purchase Limits
The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds. I’m keeping all of mine for the foreseeable future, due to their tax deferral possibilities and other unique advantages. Compare the rates on these savings bonds to what you’re earning on your FDIC-insured bank deposits or even your TIPS and bond mutual funds, and you may find them a good addition to your portfolio.

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Savings I-Bonds March/April 2012 New Rate Prediction: 2.21%

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New inflation numbers for March 2012 were announced on April 13th, so it’s time for the usual semi-annual update and rate predictions.

New Inflation Rate
September 2011 CPI-U was 226.889. March 2012 CPI-U was 229.392, for a semi-annual increase of 1.1032%. Using the official formula, the variable interest rate for the next 6 months will be approximately 2.21%, depending on the upcoming fixed rate announcement (although really it’s highly unlikely to be anything but zero).

Purchase and Redemption Timing Tips
You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur a interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time though, since if you wait too long your effective purchase date may be bumped into the next month.

Buying in April

If you buy before the end of April, the fixed rate portion of I-Bonds will be 0.0%. You will be guaranteed the current variable interest rate of 3.06% for the next 6 months, for a total rate of 0 + 3.06 = 3.06%. For the 6 months after that, the total rate will be 0.0 + 2.21 = 2.21%. Let’s say we hold for the minimum of one year and pay the 3-month interest penalty. If you buy on April 30th and sell on April 1, 2013, you’ll earn a 2.27% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. This is better than any 1-year bank CD that I can find right now, keeping in mind the liquidity concerns and the purchase limits.

Given the combination of current low rates and the fact that you lose the last 3 months of interest (again, for holding less than 5 years), it might be better to wait long enough to grab 12 full months of interest by holding for 15 months (14 buying late). If you buy on April 30th and hold until July 1st, 2013, you’d achieve a annualized return of ~2.26% over 14 months. After that, you can see what the new rates are and decide whether to keep holding them.

Buying in May

If you wait until May, you will get a new unknown fixed rate plus 2.21% for the first 6 months. I would bet my own money that that the fixed rate will be 0.0% again (any takers?), given current real yields for TIPS. The next 6 months will be based on an unknown rate based on future inflation. If there is high inflation for the next 6-month period, this may get you a higher rate sooner, but buying in April will eventually get you the same rate anyway.

My personal opinion is that you might as well lock on the guaranteed above-market rates for 12 months by buying in April instead of buying in May. You could always wait all the way until in October for the next rate announcement, but if you have the cash now you’ll have the opportunity cost of lower rates until then.

Low Purchase Limits
The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness.

For more background, see the rest of my posts on savings bonds. I’m keeping all of mine for the foreseeable future, due to their tax deferral possibilities and other unique advantages. Compare the rates on these savings bonds to what you’re earning on your FDIC-insured bank deposits, and you may start hoarding them like me.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings Bonds vs. Bank Savings Accounts

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(In this post, I’m not going to provide all the background information on savings bonds that I normally do. For that, please read the older posts in my Savings Bonds category.)

When the Treasury announced the $10,000 purchase limit for 2012, a few readers asked if you should buy savings bonds in January, or wait until later in the year. Since then, a few things have happened. For one, the Federal Reserve has basically said that they will keep their target fed funds rates at zero until late 2014, while setting a target inflation rate at 2% annually. Translation: Interest rates on savings accounts and similar products will be remain crap while the things we buy get more expensive.

Also, we have another month’s worth of Consumer Price Index (CPI) data which is how the inflation rate is defined for savings bonds. The next 6-month variable rate update will be based on the CPI-U change between September 2011 and March 2012. We are halfway there:

CPI-U
Sep 2011 226.889
Oct 2011 226.421
Nov 2011 226.230
Dec 2011 225.672
Jan 2012 ?
Feb 2012 ?
Mar 2012 ?

You can see that inflation is actually negative over these three months. However, user MoneyOCD of Bogleheads posted this informational chart showing that in recent years there have been many periods of negative inflation from September to December, only to be followed by periods of higher inflation from December to March.

Basically, making predictions now is premature. If you buy in January through April, you will get a fixed rate of 0%, and a variable rate of 3.06% for six months. Given the interest rate environment, this is pretty much one of the best options for “safe” money. If you wait all the way until May, you’ll get something new based on whatever happens to inflation the next few months along with a fixed rate that will most likely be zero again. The inflation rate resets every 6 months based on your purchase month.

In general, if you have the money and are looking to put it in shorter-term, low risk investments that are guaranteed not to lose money (in terms of face value), I would be maxing out my limit on savings bonds for 2012. Keep in mind that savings bonds can’t be cashed in for an entire year after purchase. My personal opinion on the short-term? I don’t see any benefit in waiting until May. If you have money to put aside now, buy Series I savings bonds now. If you don’t, just wait until you do. The rate is already higher than savings accounts or 1-year CDs, and by waiting around in a 0.75% savings account or 1-year CD you’ll be missing out in interest.

If you’re looking to buy in January, I’d put in your order today at TreasuryDirect. It’s better to buy near the end of the month, as you get credit for the entire month no matter if you buy at the beginning or the end.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


TreasuryDirect Electronic Savings Bond Purchase Limit Now $10,000 Annually

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The Treasury announced today 1/4 that the annual purchase limit for electronic U.S. savings bonds bought at TreasuryDirect is now $10,000 per series, per person. I’m not sure why they waited so long to decide this, given that it’s been six months since they announced that they would will no longer sell paper U.S. savings bonds through banks and other financial institutions in 2012. Thanks to reader JR for the heads up.

Under the new rules, an individual can buy a maximum of $10,000 worth of electronic savings bonds of each series in a single calendar year, or a total of $20,000. Since 2008, investors could buy a maximum of $5,000 in each series and in each form (paper or electronic). So a single owner could buy $20,000 in one year. As of January 1, 2012, paper bonds are no longer being sold through financial institutions. With today’s announcement, the total amount an individual can purchase in online savings bonds in one calendar year is $20,000. An investor still can purchase up to $5,000 annually in Series I paper savings bonds using his/her tax refund and IRS Form 8888.

This also means that you could theoretically buy $10,000 electronically and $5,000 in paper bonds in 2012. However, another weird glitch on IRS Form 8888 [pdf] is per the directions, the total amount bought on that form cannot exceed $5,000 – whether you file single or married filing jointly. So a married filing joint couple can only buy $5k between the both of them, while two single filers can get $5k each. Boo.

The Finance Buff has a nice post about what he calls the backdoor to paper savings bonds regarding overpaying your taxes on purpose. Basically, you do your taxes, then file an extension with payment included in order to make sure you have a $5k refund amount, and shortly afterward file your taxes. Supposedly tax software like TurboTax supports Form 8888, so it’s not even necessary to file using paper forms.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.