The I Bond Manifesto

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
lws
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Re: The I Bond Manifesto

Post by lws »

Carol88888 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?
And we are thankful for small mercies :D
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dogagility
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Re: The I Bond Manifesto

Post by dogagility »

catchup wrote: Mon Nov 29, 2021 1:13 pm Made my first purchase!
Only 23 years late to the party.

Thanks everyone.
We walked through that party door together.
Who knew bonds could be so exciting?! :wink: :sharebeer
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Socal77
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Re: The I Bond Manifesto

Post by Socal77 »

smectym wrote: Sun Nov 28, 2021 9:19 pm
Socal77 wrote: Sun Nov 28, 2021 8:34 pm What is the penalty if you need the money back before 12 months or less?
A 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
Thanks
Joey Jo Jo Jr
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Re: The I Bond Manifesto

Post by Joey Jo Jo Jr »

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.
MrCheapo
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Re: The I Bond Manifesto

Post by MrCheapo »

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
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Mel Lindauer
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Re: The I Bond Manifesto

Post by Mel Lindauer »

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
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.

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
MrCheapo
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Treasury Direct Bank Change Details

Post by MrCheapo »

@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?
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Re: The I Bond Manifesto

Post by user9532 »

What is the math logic behind the computation of the composite rate? Does it incorporate semi-annual compounding with 100% accuracy?
SnowBog
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Re: The I Bond Manifesto

Post by SnowBog »

user9532 wrote: Thu Dec 02, 2021 6:13 pm What is the math logic behind the computation of the composite rate? Does it incorporate semi-annual compounding with 100% accuracy?
https://www.treasurydirect.gov/indiv/re ... dterms.htm
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user9532
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Re: The I Bond Manifesto

Post by user9532 »

SnowBog wrote: Thu Dec 02, 2021 7:32 pm
user9532 wrote: Thu Dec 02, 2021 6:13 pm What is the math logic behind the computation of the composite rate? Does it incorporate semi-annual compounding with 100% accuracy?
https://www.treasurydirect.gov/indiv/re ... dterms.htm
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?
BrokerageZelda
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Re: The I Bond Manifesto

Post by BrokerageZelda »

user9532 wrote: Thu Dec 02, 2021 7:48 pm
SnowBog wrote: Thu Dec 02, 2021 7:32 pm
user9532 wrote: Thu Dec 02, 2021 6:13 pm What is the math logic behind the computation of the composite rate? Does it incorporate semi-annual compounding with 100% accuracy?
https://www.treasurydirect.gov/indiv/re ... dterms.htm
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?
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.
SnowBog
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Re: The I Bond Manifesto

Post by SnowBog »

user9532 wrote: Thu Dec 02, 2021 7:48 pm
SnowBog wrote: Thu Dec 02, 2021 7:32 pm
user9532 wrote: Thu Dec 02, 2021 6:13 pm What is the math logic behind the computation of the composite rate? Does it incorporate semi-annual compounding with 100% accuracy?
https://www.treasurydirect.gov/indiv/re ... dterms.htm
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?
Sorry - maybe I'm missing/not understanding the question... But a few thoughts/notes:
  • 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)
FinancialDave
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Re: The I Bond Manifesto

Post by FinancialDave »

ivgrivchuck wrote: Fri Sep 24, 2021 5:21 pm
Grt2bOutdoors wrote: Fri Sep 24, 2021 10:43 am
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...
Are you using living trusts plus purchasing them on an individual basis or just the living trust only?
$10k using individual account
$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
I also heard that you could add to the above list two more accounts:

$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!
SnowBog
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Re: The I Bond Manifesto

Post by SnowBog »

FinancialDave wrote: Fri Dec 03, 2021 12:18 am
ivgrivchuck wrote: Fri Sep 24, 2021 5:21 pm
Grt2bOutdoors wrote: Fri Sep 24, 2021 10:43 am
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...
Are you using living trusts plus purchasing them on an individual basis or just the living trust only?
$10k using individual account
$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
I also heard that you could add to the above list two more accounts:

$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
Just because you can apply for a business tax ID, unless these are legitimate and established businesses, I wouldn't even attempt it...

But if you are a small business owner, there are others buying them in a business account.
swaption
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Re: The I Bond Manifesto

Post by swaption »

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.
MickMal
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Re: The I Bond Manifesto

Post by MickMal »

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?
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Re: The I Bond Manifesto

Post by BrokerageZelda »

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?
You will need to create a new account in your wife's name. (You can reuse email addresses if that makes it more convenient.)

Only the account owner can register bonds as the primary owner, and purchase limits apply to the primary owner only.
ivgrivchuck
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Re: The I Bond Manifesto

Post by ivgrivchuck »

FinancialDave wrote: Fri Dec 03, 2021 12:18 am
ivgrivchuck wrote: Fri Sep 24, 2021 5:21 pm
Grt2bOutdoors wrote: Fri Sep 24, 2021 10:43 am
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...
Are you using living trusts plus purchasing them on an individual basis or just the living trust only?
$10k using individual account
$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
I also heard that you could add to the above list two more accounts:

$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
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.

But is it really worth the trouble?
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Re: The I Bond Manifesto

Post by #Cruncher »

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%
  1. Composite rate = 0 + 2 x 2 + 0 X 2 = 4
  2. On a $10,000 bond the annual interest is $400.
  3. 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).
(numbering added)
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.

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
If you're wondering how the Treasury gets the formula:
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.
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Re: The I Bond Manifesto

Post by krafty81 »

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.
SnowBog
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Re: The I Bond Manifesto

Post by SnowBog »

krafty81 wrote: Fri Dec 03, 2021 4:54 pm 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.
Yes. The main delay was getting taxes processed (had to file by paper this year).
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Re: The I Bond Manifesto

Post by FinancialDave »

ivgrivchuck wrote: Fri Dec 03, 2021 11:11 am
FinancialDave wrote: Fri Dec 03, 2021 12:18 am
ivgrivchuck wrote: Fri Sep 24, 2021 5:21 pm
Grt2bOutdoors wrote: Fri Sep 24, 2021 10:43 am
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...
Are you using living trusts plus purchasing them on an individual basis or just the living trust only?
$10k using individual account
$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
I also heard that you could add to the above list two more accounts:

$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
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.

But is it really worth the trouble?
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.

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.
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Mel Lindauer
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Re: The I Bond Manifesto

Post by Mel Lindauer »

swaption wrote: Fri Dec 03, 2021 7:54 am 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.
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
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Re: The I Bond Manifesto

Post by orlandoman »

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?
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FinancialDave
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Re: The I Bond Manifesto

Post by FinancialDave »

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.
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Dumb Question ...

Post by MrCheapo »

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.
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Re: Dumb Question ...

Post by HueyLD »

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?
The current rate is 7.12%, not 7.16% and the rate is good for 11/1/2021 thru 4/30/2022.

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
MrCheapo
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Re: Dumb Question ...

Post by MrCheapo »

HueyLD wrote: Sat Dec 04, 2021 12:14 pm
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?
The current rate is 7.12%, not 7.16% and the rate is good for 11/1/2021 thru 4/30/2022.

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
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?
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Re: Dumb Question ...

Post by FinancialDave »

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.
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.
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Re: Dumb Question ...

Post by FinancialDave »

MrCheapo wrote: Sat Dec 04, 2021 12:48 pm
HueyLD wrote: Sat Dec 04, 2021 12:14 pm
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?
The current rate is 7.12%, not 7.16% and the rate is good for 11/1/2021 thru 4/30/2022.

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
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?
The exact excel formula for the Nov variable rate from my spreadsheet is:

=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.
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Re: Dumb Question ...

Post by evelynmanley »

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.
Is this chart what you're looking for?

https://eyebonds.info/ibonds/home10000.html
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Chip Munk
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Re: Dumb Question ...

Post by Chip Munk »

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.
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.

** 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.
MrCheapo
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Re: Dumb Question ...

Post by MrCheapo »

evelynmanley wrote: Sat Dec 04, 2021 1:14 pm
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.
Is this chart what you're looking for?

https://eyebonds.info/ibonds/home10000.html
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.
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Chip Munk
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Re: Dumb Question ...

Post by Chip Munk »

MrCheapo wrote: Sat Dec 04, 2021 1:50 pm 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.
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.
AlwaysLearningMore
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Re: The I Bond Manifesto

Post by AlwaysLearningMore »

krafty81 wrote: Fri Dec 03, 2021 4:54 pm 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.
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
absolute zero
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Re: Dumb Question ...

Post by absolute zero »

MrCheapo wrote: Sat Dec 04, 2021 12:48 pm
HueyLD wrote: Sat Dec 04, 2021 12:14 pm
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?
The current rate is 7.12%, not 7.16% and the rate is good for 11/1/2021 thru 4/30/2022.

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
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?
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.
SnowBog
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Re: Dumb Question ...

Post by SnowBog »

absolute zero wrote: Sat Dec 04, 2021 2:39 pm
MrCheapo wrote: Sat Dec 04, 2021 12:48 pm
HueyLD wrote: Sat Dec 04, 2021 12:14 pm
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?
The current rate is 7.12%, not 7.16% and the rate is good for 11/1/2021 thru 4/30/2022.

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
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?
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.
Correct, you'll get 6 months of the current composite rate when you buy, regardless of when you buy.

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%.
MrCheapo wrote: Sat Dec 04, 2021 1:50 pm ... I wanted to guest-estimate the new rate.
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.
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Re: The I Bond Manifesto

Post by SnowBog »

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?
In your example, yes - because you'll lose the last 3 months - which in your example are 0% - so $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).
FinancialDave
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Re: Dumb Question ...

Post by FinancialDave »

SnowBog wrote: Sat Dec 04, 2021 4:02 pm
absolute zero wrote: Sat Dec 04, 2021 2:39 pm
MrCheapo wrote: Sat Dec 04, 2021 12:48 pm
HueyLD wrote: Sat Dec 04, 2021 12:14 pm
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?
The current rate is 7.12%, not 7.16% and the rate is good for 11/1/2021 thru 4/30/2022.

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
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?
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.
Correct, you'll get 6 months of the current composite rate when you buy, regardless of when you buy.

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%.
MrCheapo wrote: Sat Dec 04, 2021 1:50 pm ... I wanted to guest-estimate the new rate.
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.
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."

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.
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international001
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Re: The I Bond Manifesto

Post by international001 »

So, to arbitrage your rate, you typically want to invest on I-bonds on the last 2 weeks of April or October, no?
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Re: The I Bond Manifesto

Post by Harri88 »

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?
SnowBog
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Re: The I Bond Manifesto

Post by SnowBog »

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?
The two things most commonly misunderstood/overlooked:
  • 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.
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Re: The I Bond Manifesto

Post by Mel Lindauer »

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?
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.
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Re: The I Bond Manifesto

Post by Mel Lindauer »

^^^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
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Re: The I Bond Manifesto

Post by FinancialDave »

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?
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.

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.
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SnowBog
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Re: The I Bond Manifesto

Post by SnowBog »

FinancialDave wrote: Tue Dec 14, 2021 2:18 am
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?
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.

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.
+1

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
etfan
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Re: The I Bond Manifesto

Post by etfan »

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.
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Re: The I Bond Manifesto

Post by loukycpa »

etfan wrote: Tue Dec 14, 2021 5:55 am 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.
Yes I did that last year.
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jes58
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Re: The I Bond Manifesto

Post by jes58 »

Does each SSN require its own account at Treasury Direct if married filing jointly ?
SnowBog
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Re: The I Bond Manifesto

Post by SnowBog »

jes58 wrote: Tue Dec 14, 2021 11:23 am Does each SSN require its own account at Treasury Direct if married filing jointly ?
Yes.
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