And we are thankful for small merciesCarol88888 wrote: ↑Sun Nov 28, 2021 10:43 am What about deliberately overpaying one's estimated taxes by $5000 in order to get the refund in I Bonds. The only thing wrong with I Bonds is the small amount.
Wasn't the limit about $30,000 back in 2000?
The I Bond Manifesto
Re: The I Bond Manifesto
- dogagility
- Posts: 3237
- Joined: Fri Feb 24, 2017 5:41 am
Re: The I Bond Manifesto
We walked through that party door together.
Who knew bonds could be so exciting?!
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
Re: The I Bond Manifesto
Thankssmectym wrote: ↑Sun Nov 28, 2021 9:19 pmA very good question, and per Treasury Direct, “the minimum holding period is one year.” So it’s not a matter of paying a penalty to exit before 12 months or less. If you regret the buy within year one, your penalty is having to wait the full year—before then paying 3 months prior interest to exit.
https://www.treasurydirect.gov/indiv/pr ... glance.htm
-
- Posts: 553
- Joined: Mon Jun 21, 2021 11:38 pm
Re: The I Bond Manifesto
Sorry if already asked, but is there anywhere that you can backrest a portfolio including I bonds? I would assume they perform better than TIPS because they don’t give back interest in periods of deflation.
Re: The I Bond Manifesto
Nice summary @Mel Lindauer,
I didn't see it mentioned that the federal tax deduction for education expenses ONLY applies to bonds bought in the parents name not the children's name.
I didn't see it mentioned that the federal tax deduction for education expenses ONLY applies to bonds bought in the parents name not the children's name.
Mel Lindauer wrote: ↑Thu Sep 23, 2021 10:51 pm I was pleased to be included in the crafting of this I Bond Manifesto, along with Professor Zvi Bodie, David Enna and Michael Ashton. The Manifesto was written for the Consumer Financial Protection Bureau for possible inclusion in the Bureau's recommendations for emergency fund investments.
Despite only being a few days old, it has already taken on a life of its own. It was just published in the Retirement Income Journal, has been posted to Linkedin, it's on the Inflation Guy app, and TreasuryDirect posted a tweet about it on the TreasuryDirect Twitter account.
I thought it was only appropriate that it also had a home here on the Bogleheads forum, so that folks who want to know more about the workings of these often-discussed I Bonds can have access to the article and the information contained therein.
Here's a link:
https://retirementincomejournal.com/art ... ?pdf=13017
- Mel Lindauer
- Moderator
- Posts: 35782
- Joined: Mon Feb 19, 2007 7:49 pm
- Location: Daytona Beach Shores, Florida
- Contact:
Re: The I Bond Manifesto
Thanks for pointing that important fact out. Hopefully folks will see your post and be alerted to that fact. I have posted it here and other places any number of times when folks asked about using their I Bonds tax-free for qualifying educational expenses, so I do try to alert folks to that fact.MrCheapo wrote: ↑Tue Nov 30, 2021 3:22 pm Nice summary @Mel Lindauer,
I didn't see it mentioned that the federal tax deduction for education expenses ONLY applies to bonds bought in the parents name not the children's name.
Mel Lindauer wrote: ↑Thu Sep 23, 2021 10:51 pm I was pleased to be included in the crafting of this I Bond Manifesto, along with Professor Zvi Bodie, David Enna and Michael Ashton. The Manifesto was written for the Consumer Financial Protection Bureau for possible inclusion in the Bureau's recommendations for emergency fund investments.
Despite only being a few days old, it has already taken on a life of its own. It was just published in the Retirement Income Journal, has been posted to Linkedin, it's on the Inflation Guy app, and TreasuryDirect posted a tweet about it on the TreasuryDirect Twitter account.
I thought it was only appropriate that it also had a home here on the Bogleheads forum, so that folks who want to know more about the workings of these often-discussed I Bonds can have access to the article and the information contained therein.
Here's a link:
https://retirementincomejournal.com/art ... ?pdf=13017
I think the reason we didn't include it here was because The Manifesto was written for the Consumer Financial Protection Bureau for inclusion in the Bureau's recommendations for emergency fund investments. However, too much information is probably better than not enough.
Best Regards - Mel |
|
Semper Fi
Treasury Direct Bank Change Details
@Mel Lindauer one other humble suggestion for the Manifesto.
One should pay for the bonds using a bank account you intend to KEEP. I made the mistake of buying bonds using an account I got rid off. Changing the primary account is a lot of work. You need to get a signed and sealed form from your bank and send it to TD. Getting the form signed and sealed requires physically going down to the bank. I sent it to them 14 days ago. After 7 days they acknowledged receipt but still haven't changed the details in treasurydirect.com
How long does it typically take? weeks or months?
One should pay for the bonds using a bank account you intend to KEEP. I made the mistake of buying bonds using an account I got rid off. Changing the primary account is a lot of work. You need to get a signed and sealed form from your bank and send it to TD. Getting the form signed and sealed requires physically going down to the bank. I sent it to them 14 days ago. After 7 days they acknowledged receipt but still haven't changed the details in treasurydirect.com
How long does it typically take? weeks or months?
Re: The I Bond Manifesto
What is the math logic behind the computation of the composite rate? Does it incorporate semi-annual compounding with 100% accuracy?
Re: The I Bond Manifesto
Basically my question is whether the formula below (from that link) correctly implement semi-annual compounding:
Composite rate = [fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]
Assume fixed rate = 0 and semiannual rate is 2%
Composite rate = 0 + 2 x 2 + 0 X 2 = 4
On a $10,000 bond the annual interest is $400.
If you use the semiannual rate and do the compounding, you get $404, a difference of $4
(for the first half you get $200 and for the second half you get $204).
What am I missing here?
-
- Posts: 463
- Joined: Sat Apr 10, 2021 10:39 am
Re: The I Bond Manifesto
The annualized composite rate is not something that anybody actually gets over the course of exactly 1 year. It is an expression of the constant rate at which you earn interest for six months, if that gain were extrapolated to a full year without compounding. Even though there is compounding after six months in real life (and the rate can change). It's just the slope of the interest line for that six month period.user9532 wrote: ↑Thu Dec 02, 2021 7:48 pmBasically my question is whether the formula below (from that link) correctly implement semi-annual compounding:
Composite rate = [fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]
Assume fixed rate = 0 and semiannual rate is 2%
Composite rate = 0 + 2 x 2 + 0 X 2 = 4
On a $10,000 bond the annual interest is $400.
If you use the semiannual rate and do the compounding, you get $404, a difference of $4
(for the first half you get $200 and for the second half you get $204).
What am I missing here?
Re: The I Bond Manifesto
Sorry - maybe I'm missing/not understanding the question... But a few thoughts/notes:user9532 wrote: ↑Thu Dec 02, 2021 7:48 pmBasically my question is whether the formula below (from that link) correctly implement semi-annual compounding:
Composite rate = [fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]
Assume fixed rate = 0 and semiannual rate is 2%
Composite rate = 0 + 2 x 2 + 0 X 2 = 4
On a $10,000 bond the annual interest is $400.
If you use the semiannual rate and do the compounding, you get $404, a difference of $4
(for the first half you get $200 and for the second half you get $204).
What am I missing here?
- The interest is actually set against a $25 bond - and then scaled up to whatever bond you purchased. So, a $10k bond gets the interest of 400 $25 bonds (which means there is some rounding taking place).
- The composite rate is an annual rate - but only in effect for 6 months (so each month get 1/x of the rate of interest)
- The interest is "paid" monthly (ignoring the 3-month interest penalty when < 5 years)
- The interest is rolled into the principle every 6 months (which means each month you'll get "more" of a $25k bond interest added - but rounding will still apply since they use the $25 bond for the base calculation)
-
- Posts: 1819
- Joined: Thu May 26, 2011 9:36 pm
Re: The I Bond Manifesto
I also heard that you could add to the above list two more accounts:ivgrivchuck wrote: ↑Fri Sep 24, 2021 5:21 pm$10k using individual accountGrt2bOutdoors wrote: ↑Fri Sep 24, 2021 10:43 amAre you using living trusts plus purchasing them on an individual basis or just the living trust only?ivgrivchuck wrote: ↑Thu Sep 23, 2021 11:38 pm Nice article!
My wife and I just opened living trusts (one for each spouse) to buy some more of these goodies...
$10k using my trust account (using my own SSN)
$10k wife's individual account
$10k wife's trust account (using her SSN)
$5k from tax return
$10k per child (gifting)
This is good information:
https://thefinancebuff.com/buy-more-i-b ... trust.html
$10k using spouse #1 business account
$10k using spouse #2 business account
This seems like a bit of a stretch, anyone know the reasoning behind it?
The best link I could find was this one:
https://www.treasurydirect.gov/indiv/he ... rnmore.htm
This suggests a corporation or LLC could register a SSN or TIN, but doesn't confirm or deny whether it could be the same SSN used on other accounts.
Dave
I love simulated data. It turns the impossible into the possible!
Re: The I Bond Manifesto
Just because you can apply for a business tax ID, unless these are legitimate and established businesses, I wouldn't even attempt it...FinancialDave wrote: ↑Fri Dec 03, 2021 12:18 amI also heard that you could add to the above list two more accounts:ivgrivchuck wrote: ↑Fri Sep 24, 2021 5:21 pm$10k using individual accountGrt2bOutdoors wrote: ↑Fri Sep 24, 2021 10:43 amAre you using living trusts plus purchasing them on an individual basis or just the living trust only?ivgrivchuck wrote: ↑Thu Sep 23, 2021 11:38 pm Nice article!
My wife and I just opened living trusts (one for each spouse) to buy some more of these goodies...
$10k using my trust account (using my own SSN)
$10k wife's individual account
$10k wife's trust account (using her SSN)
$5k from tax return
$10k per child (gifting)
This is good information:
https://thefinancebuff.com/buy-more-i-b ... trust.html
$10k using spouse #1 business account
$10k using spouse #2 business account
This seems like a bit of a stretch, anyone know the reasoning behind it?
The best link I could find was this one:
https://www.treasurydirect.gov/indiv/he ... rnmore.htm
This suggests a corporation or LLC could register a SSN or TIN, but doesn't confirm or deny whether it could be the same SSN used on other accounts.
Dave
But if you are a small business owner, there are others buying them in a business account.
Re: The I Bond Manifesto
Thanks Mel and congrats! Will most definitely read this. Currently 20 years into a maxed out $60k investment in 3.4% fixed rate bonds. This was done in large part due to your forts to inform and educate, and I remain very appreciative.
Re: The I Bond Manifesto
Apologies for the basic question but I was unable to locate an answer and figured fellow Bogleheads could provide clarity. I recently opened a Treasury Direct account and purchased the maximum allowable amount per individual/per year for I Bonds. I now want to purchase the same in my wife's name but not sure if we need to create another account under her name or is it possible to add her as a new registrant using her SS# as the primary for the purchase but keeping everything in one account?
-
- Posts: 463
- Joined: Sat Apr 10, 2021 10:39 am
Re: The I Bond Manifesto
You will need to create a new account in your wife's name. (You can reuse email addresses if that makes it more convenient.)MickMal wrote: ↑Fri Dec 03, 2021 10:57 am Apologies for the basic question but I was unable to locate an answer and figured fellow Bogleheads could provide clarity. I recently opened a Treasury Direct account and purchased the maximum allowable amount per individual/per year for I Bonds. I now want to purchase the same in my wife's name but not sure if we need to create another account under her name or is it possible to add her as a new registrant using her SS# as the primary for the purchase but keeping everything in one account?
Only the account owner can register bonds as the primary owner, and purchase limits apply to the primary owner only.
-
- Posts: 1672
- Joined: Sun Sep 27, 2020 6:20 pm
Re: The I Bond Manifesto
If you really want to stretch it... In my understanding (I'm not a lawyer) You can open an unlimited number of trusts and apply for EIN for each of them. That should give you an unlimited access to I-bonds.FinancialDave wrote: ↑Fri Dec 03, 2021 12:18 amI also heard that you could add to the above list two more accounts:ivgrivchuck wrote: ↑Fri Sep 24, 2021 5:21 pm$10k using individual accountGrt2bOutdoors wrote: ↑Fri Sep 24, 2021 10:43 amAre you using living trusts plus purchasing them on an individual basis or just the living trust only?ivgrivchuck wrote: ↑Thu Sep 23, 2021 11:38 pm Nice article!
My wife and I just opened living trusts (one for each spouse) to buy some more of these goodies...
$10k using my trust account (using my own SSN)
$10k wife's individual account
$10k wife's trust account (using her SSN)
$5k from tax return
$10k per child (gifting)
This is good information:
https://thefinancebuff.com/buy-more-i-b ... trust.html
$10k using spouse #1 business account
$10k using spouse #2 business account
This seems like a bit of a stretch, anyone know the reasoning behind it?
The best link I could find was this one:
https://www.treasurydirect.gov/indiv/he ... rnmore.htm
This suggests a corporation or LLC could register a SSN or TIN, but doesn't confirm or deny whether it could be the same SSN used on other accounts.
Dave
But is it really worth the trouble?
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
Re: The I Bond Manifesto
Yes, the formula does produce an annual rate to be compounded semi-annually. Your calculation of $404 in (3) is correct (ignoring the rounding to the nearest penny of the base $25 bond mentioned by SnowBog above and assuming the composite rate stays the same both 6-month periods). Your calculation of $400 in (2) is irrelevant. That's what the interest would be if the compounding were not semi-annual but only annual.user9532 wrote: ↑Thu Dec 02, 2021 7:48 pmBasically my question is whether the formula ... correctly implement semi-annual compounding:
...
Assume fixed rate = 0 and semiannual rate is 2%(numbering added)
- Composite rate = 0 + 2 x 2 + 0 X 2 = 4
- On a $10,000 bond the annual interest is $400.
- If you use the semiannual rate and do the compounding, you get $404, a difference of $4
(for the first half you get $200 and for the second half you get $204).
By the way the formula requires the actual rates be used, not scaled by 100 the way you show in (1). For example, if the fixed rate was 1% instead of 0%:
Code: Select all
0.0502 = 0.01 + (2 * 0.02) + (0.01 * 0.02) : correct
7 = 1 + (2 * 2) + (1 * 2) : incorrect
composite rate = f + (2 * i) + (f * i)
where f is annual fixed rate and i is semi-annual inflation rate, it is algebraically equivalent to
composite rate = 2 * ((1 + f/2) * (1 + i) - 1)
as shown in the 3rd section of my 2014 post, I Bond & TIPS Returns and I Bond Composite Rate Formula.
Re: The I Bond Manifesto
Has anyone tried the 5K paper bond option on a tax refund? Did it work? How long to get the paper bond? When did it start? Thanks.
-
- Posts: 1819
- Joined: Thu May 26, 2011 9:36 pm
Re: The I Bond Manifesto
Not for me. One account is enough, even though I could open up one for my spouse. Saving $10k a year is normally fine for most people. It wasn't ever meant to be a place to park a lot of cash all at once like a CD or money market account.ivgrivchuck wrote: ↑Fri Dec 03, 2021 11:11 amIf you really want to stretch it... In my understanding (I'm not a lawyer) You can open an unlimited number of trusts and apply for EIN for each of them. That should give you an unlimited access to I-bonds.FinancialDave wrote: ↑Fri Dec 03, 2021 12:18 amI also heard that you could add to the above list two more accounts:ivgrivchuck wrote: ↑Fri Sep 24, 2021 5:21 pm$10k using individual accountGrt2bOutdoors wrote: ↑Fri Sep 24, 2021 10:43 amAre you using living trusts plus purchasing them on an individual basis or just the living trust only?ivgrivchuck wrote: ↑Thu Sep 23, 2021 11:38 pm Nice article!
My wife and I just opened living trusts (one for each spouse) to buy some more of these goodies...
$10k using my trust account (using my own SSN)
$10k wife's individual account
$10k wife's trust account (using her SSN)
$5k from tax return
$10k per child (gifting)
This is good information:
https://thefinancebuff.com/buy-more-i-b ... trust.html
$10k using spouse #1 business account
$10k using spouse #2 business account
This seems like a bit of a stretch, anyone know the reasoning behind it?
The best link I could find was this one:
https://www.treasurydirect.gov/indiv/he ... rnmore.htm
This suggests a corporation or LLC could register a SSN or TIN, but doesn't confirm or deny whether it could be the same SSN used on other accounts.
Dave
But is it really worth the trouble?
Granted it is 7.12% for the next six months, but not too long ago it was 0% for six months, so it's not like you are printing money, you are only keeping up with inflation - better than many other options for principal-protected cash, but not something to replace most growth funds.
Last edited by FinancialDave on Sat Dec 04, 2021 11:35 am, edited 1 time in total.
I love simulated data. It turns the impossible into the possible!
- Mel Lindauer
- Moderator
- Posts: 35782
- Joined: Mon Feb 19, 2007 7:49 pm
- Location: Daytona Beach Shores, Florida
- Contact:
Re: The I Bond Manifesto
Glad you got in while the getting was good. I took my own advice and have those 3.4% bonds plus some of the best ones ever - the 3.6% fixed ones.
Best Regards - Mel |
|
Semper Fi
-
- Posts: 675
- Joined: Tue Oct 19, 2010 7:27 am
Re: The I Bond Manifesto
I've tried to digest all the posts but are unclear on the following concerning the last 3 months interest penaly if redeemed between 1-5 years:
- assume I purchased I-Bond in November at 7.12% for 6 months
- assume the May rate is 0% for 6 months
Treasury Direct website says: "Early redemption penalty: Before 5 years, forfeit interest from the previous 3 months".
If I redeem in 1 year, is the penalty is $0?
- assume I purchased I-Bond in November at 7.12% for 6 months
- assume the May rate is 0% for 6 months
Treasury Direct website says: "Early redemption penalty: Before 5 years, forfeit interest from the previous 3 months".
If I redeem in 1 year, is the penalty is $0?
"Borrow money from pessimists -- they don't expect it back"
-
- Posts: 1819
- Joined: Thu May 26, 2011 9:36 pm
Re: The I Bond Manifesto
orlandoman wrote: ↑Sat Dec 04, 2021 11:23 am I've tried to digest all the posts but are unclear on the following concerning the last 3 months interest penaly if redeemed between 1-5 years:
- assume I purchased I-Bond in November at 7.12% for 6 months
- assume the May rate is 0% for 6 months
Treasury Direct website says: "Early redemption penalty: Before 5 years, forfeit interest from the previous 3 months".
If I redeem in 1 year, is the penalty is $0?
I don't know any other way to read it. If you look at your account on any particular day, what they are showing you normally is the redemption value, so right now when I look at some of my I-bonds they are showing me the total from 3 months ago. Except in the case where it is less than 1 year old in which they show you the deposit amount.
I love simulated data. It turns the impossible into the possible!
Dumb Question ...
The current 7.16% rate is available from 11/15 to 04/15.
a) If I buy the bond on 04/14 I get the rate of 7.16% for the next six months or just the next 1 day?
b) Is there anyway to get a guest-estimate on the next rate. Presumably some inflation metric could be a good proxy?
Thanks.
a) If I buy the bond on 04/14 I get the rate of 7.16% for the next six months or just the next 1 day?
b) Is there anyway to get a guest-estimate on the next rate. Presumably some inflation metric could be a good proxy?
Thanks.
Re: Dumb Question ...
The current rate is 7.12%, not 7.16% and the rate is good for 11/1/2021 thru 4/30/2022.MrCheapo wrote: ↑Sat Dec 04, 2021 11:45 am The current 7.16% rate is available from 11/15 to 04/15.
a) If I buy the bond on 04/14 I get the rate of 7.16% for the next six months or just the next 1 day?
b) Is there anyway to get a guest-estimate on the next rate. Presumably some inflation metric could be a good proxy?
To guesstimate, you will need to wait for the publication of March 2022 non-seasonably adjusted CPI-U and compare it to the non-seasonably adjusted CPI-U for September 2021.
As an example, the 7.12% inflation rate is calculated as follows:
(274.310 - 264.877)/264.877 x 2 = 7.12%
274.310 = Sep. 2021 CPI-U
264.877 = Mar. 2021 CPI-U
Re: Dumb Question ...
Thanks for the correction. So if I buy on 03/01 I'd only get one month of the 7.12% rate? Is that right?HueyLD wrote: ↑Sat Dec 04, 2021 12:14 pmThe current rate is 7.12%, not 7.16% and the rate is good for 11/1/2021 thru 4/30/2022.MrCheapo wrote: ↑Sat Dec 04, 2021 11:45 am The current 7.16% rate is available from 11/15 to 04/15.
a) If I buy the bond on 04/14 I get the rate of 7.16% for the next six months or just the next 1 day?
b) Is there anyway to get a guest-estimate on the next rate. Presumably some inflation metric could be a good proxy?
To guesstimate, you will need to wait for the publication of March 2022 non-seasonably adjusted CPI-U and compare it to the non-seasonably adjusted CPI-U for September 2021.
As an example, the 7.12% inflation rate is calculated as follows:
(274.310 - 264.877)/264.877 x 2 = 7.12%
274.310 = Sep. 2021 CPI-U
264.877 = Mar. 2021 CPI-U
-
- Posts: 1819
- Joined: Thu May 26, 2011 9:36 pm
Re: Dumb Question ...
To be clear the 7.12% variable rate (+ any fixed rate you have on older bonds) will be good for 6 calendar months of any bond you buy or any bond whose semi-annual renewal date falls in the window of Nov - next Apr. Also to be clear every I-bond you own will have a renewal date in that 6 month window that I just mentioned and that will start the 7.12% rate until its next renewal date where it will reset and repeat with most likely a different rate.MrCheapo wrote: ↑Sat Dec 04, 2021 11:45 am The current 7.16% rate is available from 11/15 to 04/15.
a) If I buy the bond on 04/14 I get the rate of 7.16% for the next six months or just the next 1 day?
b) Is there anyway to get a guest-estimate on the next rate. Presumably some inflation metric could be a good proxy?
Thanks.
I love simulated data. It turns the impossible into the possible!
-
- Posts: 1819
- Joined: Thu May 26, 2011 9:36 pm
Re: Dumb Question ...
The exact excel formula for the Nov variable rate from my spreadsheet is:MrCheapo wrote: ↑Sat Dec 04, 2021 12:48 pmThanks for the correction. So if I buy on 03/01 I'd only get one month of the 7.12% rate? Is that right?HueyLD wrote: ↑Sat Dec 04, 2021 12:14 pmThe current rate is 7.12%, not 7.16% and the rate is good for 11/1/2021 thru 4/30/2022.MrCheapo wrote: ↑Sat Dec 04, 2021 11:45 am The current 7.16% rate is available from 11/15 to 04/15.
a) If I buy the bond on 04/14 I get the rate of 7.16% for the next six months or just the next 1 day?
b) Is there anyway to get a guest-estimate on the next rate. Presumably some inflation metric could be a good proxy?
To guesstimate, you will need to wait for the publication of March 2022 non-seasonably adjusted CPI-U and compare it to the non-seasonably adjusted CPI-U for September 2021.
As an example, the 7.12% inflation rate is calculated as follows:
(274.310 - 264.877)/264.877 x 2 = 7.12%
274.310 = Sep. 2021 CPI-U
264.877 = Mar. 2021 CPI-U
=ROUND((($C84/$C78)-1),4)*2
where C84 is the Sept CPI-U# and C78 is the Mar CPI-U #
The order of rounding and doubling is important if you want to get the right answer.
I love simulated data. It turns the impossible into the possible!
-
- Posts: 1029
- Joined: Tue Sep 21, 2010 9:13 am
Re: Dumb Question ...
Is this chart what you're looking for?MrCheapo wrote: ↑Sat Dec 04, 2021 11:45 am The current 7.16% rate is available from 11/15 to 04/15.
a) If I buy the bond on 04/14 I get the rate of 7.16% for the next six months or just the next 1 day?
b) Is there anyway to get a guest-estimate on the next rate. Presumably some inflation metric could be a good proxy?
Thanks.
https://eyebonds.info/ibonds/home10000.html
Re: Dumb Question ...
If you purchase between now and Apr 30, 2022** you will get the 7.12% rate for a full 6 months, with interest credited from the first day of the month in which you purchase. So if you purchase sometime this month (December), you get the current variable rate of interest for Dec 1, 2021 - May 31, 2022. Then for the next six months from Jun 1, 2022 to Nov 31, 2022 you will earn whatever variable rate goes into effect on May 1, 2022, and so on for as long as you own the bond or until it matures.MrCheapo wrote: ↑Sat Dec 04, 2021 11:45 am The current 7.16% rate is available from 11/15 to 04/15.
a) If I buy the bond on 04/14 I get the rate of 7.16% for the next six months or just the next 1 day?
b) Is there anyway to get a guest-estimate on the next rate. Presumably some inflation metric could be a good proxy?
Thanks.
** Edited to add: Apr 30, 2022 is a Saturday and if I remember correctly you cannot purchase I Bonds on a non-business day so technically your last day to purchase at the current variable rate would be Apr 29, 2022.
Last edited by Chip Munk on Sat Dec 04, 2021 3:08 pm, edited 2 times in total.
Re: Dumb Question ...
Thanks, but that chart is backwards looking. My point is that at the end of March we'll have the chance of buying a bond at the current rate (7.12%) or at the new rate (if we delay the purchase until after 04/01). I wanted to guest-estimate the new rate.evelynmanley wrote: ↑Sat Dec 04, 2021 1:14 pmIs this chart what you're looking for?MrCheapo wrote: ↑Sat Dec 04, 2021 11:45 am The current 7.16% rate is available from 11/15 to 04/15.
a) If I buy the bond on 04/14 I get the rate of 7.16% for the next six months or just the next 1 day?
b) Is there anyway to get a guest-estimate on the next rate. Presumably some inflation metric could be a good proxy?
Thanks.
https://eyebonds.info/ibonds/home10000.html
Re: Dumb Question ...
The current variable rate applies to I Bond purchases through the *end* of April 2022. The next variable rate will apply to I Bonds purchased in May-Oct.
-
- Posts: 1935
- Joined: Sun Jul 26, 2020 2:29 pm
Re: The I Bond Manifesto
Yes. No issues. The refund arrived a few weeks after return's submission, in various paper I Bond denominations.
https://www.irs.gov/pub/irs-pdf/f8888.pdf
(Some CPA's are not familiar with this form, you may have to explain it to them.)
Retirement is best when you have a lot to live on, and a lot to live for. * None of what I post is investment advice.* |
FIRE'd July 2023
-
- Posts: 1244
- Joined: Thu Dec 29, 2016 3:59 pm
Re: Dumb Question ...
I think that even if you wait until March to buy, you still get 6 months of the 7.12% rate. But maybe someone else can confirm, or correct me.MrCheapo wrote: ↑Sat Dec 04, 2021 12:48 pmThanks for the correction. So if I buy on 03/01 I'd only get one month of the 7.12% rate? Is that right?HueyLD wrote: ↑Sat Dec 04, 2021 12:14 pmThe current rate is 7.12%, not 7.16% and the rate is good for 11/1/2021 thru 4/30/2022.MrCheapo wrote: ↑Sat Dec 04, 2021 11:45 am The current 7.16% rate is available from 11/15 to 04/15.
a) If I buy the bond on 04/14 I get the rate of 7.16% for the next six months or just the next 1 day?
b) Is there anyway to get a guest-estimate on the next rate. Presumably some inflation metric could be a good proxy?
To guesstimate, you will need to wait for the publication of March 2022 non-seasonably adjusted CPI-U and compare it to the non-seasonably adjusted CPI-U for September 2021.
As an example, the 7.12% inflation rate is calculated as follows:
(274.310 - 264.877)/264.877 x 2 = 7.12%
274.310 = Sep. 2021 CPI-U
264.877 = Mar. 2021 CPI-U
Re: Dumb Question ...
Correct, you'll get 6 months of the current composite rate when you buy, regardless of when you buy.absolute zero wrote: ↑Sat Dec 04, 2021 2:39 pmI think that even if you wait until March to buy, you still get 6 months of the 7.12% rate. But maybe someone else can confirm, or correct me.MrCheapo wrote: ↑Sat Dec 04, 2021 12:48 pmThanks for the correction. So if I buy on 03/01 I'd only get one month of the 7.12% rate? Is that right?HueyLD wrote: ↑Sat Dec 04, 2021 12:14 pmThe current rate is 7.12%, not 7.16% and the rate is good for 11/1/2021 thru 4/30/2022.MrCheapo wrote: ↑Sat Dec 04, 2021 11:45 am The current 7.16% rate is available from 11/15 to 04/15.
a) If I buy the bond on 04/14 I get the rate of 7.16% for the next six months or just the next 1 day?
b) Is there anyway to get a guest-estimate on the next rate. Presumably some inflation metric could be a good proxy?
To guesstimate, you will need to wait for the publication of March 2022 non-seasonably adjusted CPI-U and compare it to the non-seasonably adjusted CPI-U for September 2021.
As an example, the 7.12% inflation rate is calculated as follows:
(274.310 - 264.877)/264.877 x 2 = 7.12%
274.310 = Sep. 2021 CPI-U
264.877 = Mar. 2021 CPI-U
For example, the current 7.12% composite rate started in November. You could purchase $10k in either November or December and another $10k anytime between January and April - both would get 6 months at 7.12%.
There is no way to "guess" the need rate this far in advance. Since the inflation rate is set based on actual inflation (CPI), and we can't know in advance what prices will be, you'll just need to wait.
Usually a month prior to the new rate, you can start to get reasonable estimates. But not this far out.
Re: The I Bond Manifesto
In your example, yes - because you'll lose the last 3 months - which in your example are 0% - so $0.orlandoman wrote: ↑Sat Dec 04, 2021 11:23 am I've tried to digest all the posts but are unclear on the following concerning the last 3 months interest penaly if redeemed between 1-5 years:
- assume I purchased I-Bond in November at 7.12% for 6 months
- assume the May rate is 0% for 6 months
Treasury Direct website says: "Early redemption penalty: Before 5 years, forfeit interest from the previous 3 months".
If I redeem in 1 year, is the penalty is $0?
TreasuryDirect shows your bonds with the value you'd get when redeemed (although you have to go down one level in the sure to see it).
So you won't see any interest for the first 3 months. Starting the 4th month, you'll start to see interest from 3 months earlier show up (aka 1st month interest shows up at the 4th month), so at 12 months you'll see the first 9 months interest, etc.
When the bond is 5 years old, you'll see all interest (basically you'll get the last/missing 3 months added - so 4 months of interest show up at once).
-
- Posts: 1819
- Joined: Thu May 26, 2011 9:36 pm
Re: Dumb Question ...
To be clear, you can get 6 months of the existing rate up until the last week in April at which time you will already know the new rate because the March CPI-U number was already released in the first half of April. I wouldn't push it too late in April, at least past the 27th, if you want to get that rate, because they post your buy date as "the next business day."SnowBog wrote: ↑Sat Dec 04, 2021 4:02 pmCorrect, you'll get 6 months of the current composite rate when you buy, regardless of when you buy.absolute zero wrote: ↑Sat Dec 04, 2021 2:39 pmI think that even if you wait until March to buy, you still get 6 months of the 7.12% rate. But maybe someone else can confirm, or correct me.MrCheapo wrote: ↑Sat Dec 04, 2021 12:48 pmThanks for the correction. So if I buy on 03/01 I'd only get one month of the 7.12% rate? Is that right?HueyLD wrote: ↑Sat Dec 04, 2021 12:14 pmThe current rate is 7.12%, not 7.16% and the rate is good for 11/1/2021 thru 4/30/2022.MrCheapo wrote: ↑Sat Dec 04, 2021 11:45 am The current 7.16% rate is available from 11/15 to 04/15.
a) If I buy the bond on 04/14 I get the rate of 7.16% for the next six months or just the next 1 day?
b) Is there anyway to get a guest-estimate on the next rate. Presumably some inflation metric could be a good proxy?
To guesstimate, you will need to wait for the publication of March 2022 non-seasonably adjusted CPI-U and compare it to the non-seasonably adjusted CPI-U for September 2021.
As an example, the 7.12% inflation rate is calculated as follows:
(274.310 - 264.877)/264.877 x 2 = 7.12%
274.310 = Sep. 2021 CPI-U
264.877 = Mar. 2021 CPI-U
For example, the current 7.12% composite rate started in November. You could purchase $10k in either November or December and another $10k anytime between January and April - both would get 6 months at 7.12%.
There is no way to "guess" the need rate this far in advance. Since the inflation rate is set based on actual inflation (CPI), and we can't know in advance what prices will be, you'll just need to wait.
Usually a month prior to the new rate, you can start to get reasonable estimates. But not this far out.
By next Friday the 10th of December we will already be 1/3 of the way to the new number seeing numbers for both Oct & Nov. So it's not like we won't see how it is going along the way.
I love simulated data. It turns the impossible into the possible!
-
- Posts: 2748
- Joined: Thu Feb 15, 2018 6:31 pm
Re: The I Bond Manifesto
So, to arbitrage your rate, you typically want to invest on I-bonds on the last 2 weeks of April or October, no?
Re: The I Bond Manifesto
I have a question on how the interest for iBonds is calculated. When I looked at my account today it didnt seem correct. I purchased 10,000 June 10, 2021 and the composite rate was 3.54%, and that is the annual rate if I am not mistaken. The 6 month rate is 1/2 of 3.54, or 1.77%.
TD is showing the my account it 10,088. I was assuming it would be around 10,177. What am I not understanding, or where am I making a mistake on how the interested is calculated? Or is TD slow at updating their site?
TD is showing the my account it 10,088. I was assuming it would be around 10,177. What am I not understanding, or where am I making a mistake on how the interested is calculated? Or is TD slow at updating their site?
Re: The I Bond Manifesto
The two things most commonly misunderstood/overlooked:Harri88 wrote: ↑Mon Dec 13, 2021 7:50 pm I have a question on how the interest for iBonds is calculated. When I looked at my account today it didnt seem correct. I purchased 10,000 June 10, 2021 and the composite rate was 3.54%, and that is the annual rate if I am not mistaken. The 6 month rate is 1/2 of 3.54, or 1.77%.
TD is showing the my account it 10,088. I was assuming it would be around 10,177. What am I not understanding, or where am I making a mistake on how the interested is calculated? Or is TD slow at updating their site?
- Interest is calculated on a $25 bonds and then scaled up (so $10k is 400 x $25k bonds) - so there is some rounding taking place.
- There is a 3-month interest rate penalty for bonds < 5 years old. TD manages this by withholding the last 3 months interest, meaning in your 4th month you'll see your 1st month of interest added, in your 5th month you'll see your 2nd months interest added. When you get to the 5-year mark - you'll get the "missing" 3-months interest added (basically you'll see 4 months interest added that month).
Last edited by SnowBog on Mon Dec 13, 2021 8:38 pm, edited 1 time in total.
- Mel Lindauer
- Moderator
- Posts: 35782
- Joined: Mon Feb 19, 2007 7:49 pm
- Location: Daytona Beach Shores, Florida
- Contact:
Re: The I Bond Manifesto
They are showing you the redemption value, and that means they're withholding the last three months interest penalty until you hit the five year mark, in which case there is no penalty for early redemption. At that point, you'll see a "surge" in value.Harri88 wrote: ↑Mon Dec 13, 2021 7:50 pm I have a question on how the interest for iBonds is calculated. When I looked at my account today it didnt seem correct. I purchased 10,000 June 10, 2021 and the composite rate was 3.54%, and that is the annual rate if I am not mistaken. The 6 month rate is 1/2 of 3.54, or 1.77%.
TD is showing the my account it 10,088. I was assuming it would be around 10,177. What am I not understanding, or where am I making a mistake on how the interested is calculated? Or is TD slow at updating their site?
Best Regards - Mel |
|
Semper Fi
- Mel Lindauer
- Moderator
- Posts: 35782
- Joined: Mon Feb 19, 2007 7:49 pm
- Location: Daytona Beach Shores, Florida
- Contact:
Re: The I Bond Manifesto
^^^SnowBog and I were responding at the same time, but fortunately we said the same thing and agreed on the reason.
Best Regards - Mel |
|
Semper Fi
-
- Posts: 1819
- Joined: Thu May 26, 2011 9:36 pm
Re: The I Bond Manifesto
In my opinion, the ONLY reason to wait when investing money, is IF you think your lifetime return will be better by waiting. The only way that will happen with I-bonds is if you can tack on a fixed rate by waiting during the year. This year that ship has sailed, but let's rewind the clock to Jan to emphasize a point.international001 wrote: ↑Mon Dec 13, 2021 7:47 pm So, to arbitrage your rate, you typically want to invest on I-bonds on the last 2 weeks of April or October, no?
On Jan 1st, 2021 you have set aside in your savings account $10k (currently earning .01% interest) for investing in I-bonds during the year. Someone tells you there is zero percent chance TD will initiate any fixed rates in 2021 but you don't really believe him so you decide to wait until the last two weeks of April when you know what the rate for May to Nov will be. No fixed rate shows up, and it looks bleak so you invest on April 20th $5k of your allotment, which gets you 1.68%/2 for the 1st 6 months, 3.54%/2 for the next 6 months and 7.12%/2 for the following 6 months.
You then see in Oct that the new fixed rate will be 7.12% starting in Nov so you invest the second $5k in Nov and thus get 6 months @ 7.12%/2.
Let's compare the above "arbitrage" with the person who told you to just invest the $10k on Jan 2nd because "waiting is not a good strategy for 2021" with zero fixed rates the most probable outcome.
If my spreadsheet is correct these are the results
Investor A who buys $10k I-bond on Jan 2nd 2021 - has accrued a balance of $10,508 (neglecting 3 mo penalty) by 5/1/2022.
Investor B who buys $5k on Apr 20th and $5k on Nov 1st accrued a balance of $10,342 by the same May 1st 2022 date.
What happens is that each month you delay the I-bond purchase is a month that won't have interest in your account and some interest is always better than no interest.
Last edited by FinancialDave on Tue Dec 14, 2021 2:33 am, edited 1 time in total.
I love simulated data. It turns the impossible into the possible!
Re: The I Bond Manifesto
+1FinancialDave wrote: ↑Tue Dec 14, 2021 2:18 amIn my opinion, the ONLY reason to wait when investing money, is IF you think your lifetime return will be better by waiting. The only way that will happen with I-bonds is if you can tack on a fixed rate by waiting during the year. This year that ship has sailed, but let's rewind the clock to Jan to emphasize a point.international001 wrote: ↑Mon Dec 13, 2021 7:47 pm So, to arbitrage your rate, you typically want to invest on I-bonds on the last 2 weeks of April or October, no?
On Jan 1st, 2021 you have set aside in your savings account $10k (currently earning .01% interest) for investing in I-bonds during the year. Someone tells you there is zero percent chance TD will initiate any fixed rates in 2021 but you don't really believe him so you decide to wait until the last two weeks of April when you know what the rate for May to Nov will be. No fixed rate shows up, and it looks bleak so you invest on April 20th $5k of your allotment, which gets you 1.68%/2 for the 1st 6 months, 3.54%/2 for the next 6 months and 7.12%/2 for the following 6 months.
You then see in Oct that the new fixed rate will be 7.12% starting in Nov so you invest the second $5k in Nov and thus get 6 months @ 7.12%/2.
Let's compare the above "arbitrage" with the person who told you to just invest the $10k on Jan 2nd because "waiting is not a good strategy for 2021" with zero fixed rates the most probable outcome.
If my spreadsheet is correct these are the results
Investor A who buys $10k I-bond on Jan 2nd 2021 - has accrued a balance of $10,508 (neglecting 3 mo penalty) by 5/1/2022.
Investor B who buys $5k on Apr 20th and $5k on Nov 1st accrued a balance of $10,342 by the same May 1st 2022 date.
To my simple mind, I view this like DCA vs. lump sum. Mathematically, lump sum typically wins. But DCA helps people who have an "aversion" to missing out.
My plan is to invest as the money is available.
The only time I'd think about "timing" is if that money became available say within 30 days of the next rate announcement. Then I might be tempted (especially as I'd likely wait until near month end anyway) to "wait and see" if the following months rate was better - in particular an unexpected rise to the "fixed" rate. But I wouldn't wait 3+ months to figure this out...
And for those afraid on missing out on a really good rate... The November rate will be available to be purchased in the following year - you may not get "as much" as if you waited - but you can still get it (and per FinancialDave's post - waiting likely cost you money). The only rate you potentially "miss" is the May rate - as your window closes in November. If that rate included an unexpected "fixed" rate > 0%, it might be a good time to check out "front-loading" I Bonds as per this post: viewtopic.php?f=1&t=306297
Re: The I Bond Manifesto
Whenever the manifesto says, "per year", I am assuming it really means, "per calendar year". Is that correct? An individual can buy $10,000 on December 31st, and then another $10,000 the very next day, for example.
Re: The I Bond Manifesto
Yes I did that last year.
"The safe assumption for an investor is that over the next hundred years, the currency is going to zero." - Charlie Munger
Re: The I Bond Manifesto
Does each SSN require its own account at Treasury Direct if married filing jointly ?