I Bonds

[Matt D]

Just remember these bonds adjust with the rate of inflation. I own some but if we hit a recession and inflation drops to 3 % then that is what it will adjust to. They are great for the here and now but if long bonds go beyond the projected breakeven rate then those may be better options. I'm using them solely for a small portion of cash as a substitute for a savings account.

I agree with what you are saying exactly. IMO these are short term, hopefully, opportunities for cash you had sitting not making much of any interest. I hope to hell that in 12 -15 months mine are sold and gone. If they aren’t then that means we have had an extended period of high inflation and that is not good for us overall. My strategy is once rates on them go to 2 percent or under range I will leave them for 3 months so that 2 % return is what I give up for the penalty of selling before holding for 5 years and take my returns and figure out the next place to put the money.

[NitroZ7]

I agree with what you are saying exactly. IMO these are short term, hopefully, opportunities for cash you had sitting not making much of any interest. I hope to hell that in 12 -15 months mine are sold and gone. If they aren’t then that means we have had an extended period of high inflation and that is not good for us overall. My strategy is once rates on them go to 2 percent or under range I will leave them for 3 months so that 2 % return is what I give up for the penalty of selling before holding for 5 years and take my returns and figure out the next place to put the money.

That is exactly my plan as well.

[digthemup]

Just remember these bonds adjust with the rate of inflation. I own some but if we hit a recession and inflation drops to 3 % then that is what it will adjust to. They are great for the here and now but if long bonds go beyond the projected breakeven rate then those may be better options. I'm using them solely for a small portion of cash as a substitute for a savings account.

Just in for 15 mo. so I will get a full yr when you take out for penalty

[digthemup]

I agree with what you are saying exactly. IMO these are short term, hopefully, opportunities for cash you had sitting not making much of any interest. I hope to hell that in 12 -15 months mine are sold and gone. If they aren’t then that means we have had an extended period of high inflation and that is not good for us overall. My strategy is once rates on them go to 2 percent or under range I will leave them for 3 months so that 2 % return is what I give up for the penalty of selling before holding for 5 years and take my returns and figure out the next place to put the money.

Matt

Are you going back in if we get another good rate in Nov?
If we do, I am thinking of doing 1 more in Jan 2023 max out for me and wife, and let it ride for 15 mo., Lord willing. I figure that would lock a good rate for the front part, and roll the dice for the second half, especially since I would be doing it with house money from previous gains and locked in front 6.

[Matt D]

Matt

Are you going back in if we get another good rate in Nov?
If we do, I am thinking of doing 1 more in Jan 2023 max out for me and wife, and let it ride for 15 mo., Lord willing. I figure that would lock a good rate for the front part, and roll the dice for the second half, especially since I would be doing it with house money from previous gains and locked in front 6.

The great thing with I bonds is knowing what the next rate change will be approx 6 weeks before it takes affect. If the November rate is still gonna be strong I will gift a 10,000 amount at the end of October so that it locks in the 9.6 rate for the first 6 months and then the November adjusted rate for the second 6 months. I have not gifted anything to my wife or vice versa yet so that would be my next move for our situation. I don’t think November will be as strong as the May rate but only time will tell us that.

[digthemup]

The great thing with I bonds is knowing what the next rate change will be approx 6 weeks before it takes affect. If the November rate is still gonna be strong I will gift a 10,000 amount at the end of October so that it locks in the 9.6 rate for the first 6 months and then the November adjusted rate for the second 6 months. I have not gifted anything to my wife or vice versa yet so that would be my next move for our situation. I don’t think November will be as strong as the May rate but only time will tell us that.

We are max out until 2023, so will see which direction things are going by that time, especially with inflation, which that could change the rate offering. I will probably drop another 40K if things are favorable, as they were this round.

[apenland01]

Can the gifting be done to a son, or is it only an option for a spouse???

I have never bought an I Bond, but a 6 month guarantee of 9.6% and a likely rate of above 5% in November is extremely attractive for parking idle cash for 15 months or so. I don't see inflation dropping anytime soon due to short supply, versus too much money flying around. Until the world's employment and staffing issues get fixed, the short supply problem is going to keep prices elevated for the foreseeable future, in my opinion...

[apenland01]

The Treasury Direct website says you can gift to children, but it doesn't specify if it includes adult children. I guess the best thing would be have him create an account on Treasury Direct, then I can buy one for me and one for him as a gift and see if it works....

[digthemup]

Can the gifting be done to a son, or is it only an option for a spouse???

I have never bought an I Bond, but a 6 month guarantee of 9.6% and a likely rate of above 5% in November is extremely attractive for parking idle cash for 15 months or so. I don't see inflation dropping anytime soon due to short supply, versus too much money flying around. Until the world's employment and staffing issues get fixed, the short supply problem is going to keep prices elevated for the foreseeable future, in my opinion...

As far as I can determine on the site, you can gift it to anyone that you add to your account and you will need their SS# to do it, since they use it for tax purposes.
What you suggested was the reason why I parked as much possible, and I hope to do a repeat in January 2023, Lord willing.

[Edziu23]

So can someone run the #s for me? If I drop 20K we would get 9.6% for 6 months then it drops to most likely around what? I know its a loaded question but what is the anticipated return for 1 year? 5 years? I think its the best way to go right now but I am struggling to understand it fully, with the different rates thrown around.

[NitroZ7]

So can someone run the #s for me? If I drop 20K we would get 9.6% for 6 months then it drops to most likely around what? I know its a loaded question but what is the anticipated return for 1 year? 5 years? I think its the best way to go right now but I am struggling to understand it fully, with the different rates thrown around.

It depends on what the inflation rate is. You could get 9.6% the first year and 4% the second year depending on what inflation is. Also the rate is an annual rate so if it stays at 9% and you have $20,000.00 you make $1,800.00 the first year. If it is 9% and then re-adjusts to 5% then you get about 7% since it re-adjusts every 6 months I believe.

[Matt D]

So can someone run the #s for me? If I drop 20K we would get 9.6% for 6 months then it drops to most likely around what? I know its a loaded question but what is the anticipated return for 1 year? 5 years? I think its the best way to go right now but I am struggling to understand it fully, with the different rates thrown around.

Yes it’s a loaded question that can’t be answered. You will get 9.6% for your first 6 months. There will be another adjustment in November that will be known mid to lat September what that new rate will be. That was what made April time frame key to getting money in as you knew what the current rate was and also what the future rate would be so you knew 12 months worth. Same will happen in October. I’m torn on how long this high rate will stay. Think there are so many variables it’s tough to say for sure.

[Edziu23]

So essentially in 6 months your rate switches from the composite rate of 9.6% to the inflation rate and stays at whatever the inflation rate is adjusting every 6 months? So say you keep it in 5 years and the first 6 months is 9.6% and the rest of the 5 years its 1% your total rate of return is just above 1%?

[apenland01]

I don't believe it's going to hold out for 5 years. If you hold it for 15 months, you will collect 12 months of interest and pay 3 months of interest in penalty for cashing it in before 5 years. This I Bond investment is gambling that the October inflation rate announcement is going to be something substantially higher than 2%.

The rate for months 13-15 are irrelevant if you are dumping the I Bond and keeping the 12 months of interest payments, which with any luck, will be 9.6% for 6 months and something North of 5% for the next 6 months....

[apenland01]

Ideally, the I Bond should have been purchased prior to May 1, as the entirety of the twelve month interest rate is basically guaranteed....

As it stands now, 9.6% guaranteed for 6 months and consider the backside 6 months as insurance if inflation stays elevated. If inflation drops to 2%, then what you are paying for goods and services will basically offset the loss in interest for the backside 6 months.

That's how I'm approaching it anyway....

[digthemup]

So essentially in 6 months your rate switches from the composite rate of 9.6% to the inflation rate and stays at whatever the inflation rate is adjusting every 6 months? So say you keep it in 5 years and the first 6 months is 9.6% and the rest of the 5 years its 1% your total rate of return is just above 1%?

Ed
You do understand that these bonds can be cashed out after 15 mo to get the benefit of the full 12 mo rate, so you can put that money somewhere else if you are not pleased with the rates in the future.
Current rate is 9.6% and last rate was 7.6%, so up until Nov, your money is earning you about 8.5%. When the new rate is announced, your money will be earning the quotient of (9.6% + future rate/2), and this repeats every 6 mo until you cash it in.

[Edziu23]

I get that they can be cased out but was somewhat confused about what rate is what. When you say: When the new rate is announced, your money will be earning the quotient of (9.6% + future rate/2), and this repeats every 6 mo until you cash it in. Do you mean that the future rate is the new composite rate or the inflation rate? For example: May to Oct 2019 the composite rate was 10.14% then dropped down to 9.83% in Nov but the inflation rate was 1.01% in Nov. Would you earn 9.99% or 5.58% for those 12 months?

I have typically gone the CD route for emergency $$ not sure why I have never thrown $$ into these when CDs have paid less than crap.

[digthemup]

I get that they can be cased out but was somewhat confused about what rate is what. When you say: When the new rate is announced, your money will be earning the quotient of (9.6% + future rate/2), and this repeats every 6 mo until you cash it in. Do you mean that the future rate is the new composite rate or the inflation rate? For example: May to Oct 2019 the composite rate was 10.14% then dropped down to 9.83% in Nov but the inflation rate was 1.01% in Nov. Would you earn 9.99% or 5.58% for those 12 months?

I have typically gone the CD route for emergency $$ not sure why I have never thrown $$ into these when CDs have paid less than crap.

I don't concentrate much how they formulate the rate, but I wait until the announcement, and make my decision at that point. Unlike CDs, you can cash out if you don't like it, and I have my doubts that we will see inflation in the very low digits as everyone got spoiled in the past decade. I am old enough to recall inflation at low numbers being not the norm.
Here is from their site, and I pray you don't get a headache from it:

An exampleThe composite rate for I bonds issued from May 2022 through October 2022 is 9.62%
Here's how we set that composite rate:


Fixed rate 0.00%


Semiannual inflation rate 4.81%


Composite rate = [fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]


[0.0000 + (2 x 0.0481) + (0.0000 x 0.0481)]

Composite rate [0.0000 + 0.0962 + 0.0000000]


Composite rate 0.0962000 = Composite rate 9.62%


When does my bond change rates? Issue month of your bond
New rates take effect


January January 1 and July 1
February February 1 and August 1
March March 1 and September 1
April April 1 and October 1
May May 1 and November 1
June June 1 and December 1
July July 1 and January 1
August August 1 and February 1
September September 1 and March 1
October October 1 and April 1
November November 1 and May 1
December December 1 and June 1

[RyanJ]

So how long do we let the money sit in an IBOND?? What's the best play with this.....

[digthemup]

So how long do we let the money sit in an IBOND?? What's the best play with this.....

Personally, I review my position at 15 mo as I have previously stated. My reasoning for doing so is to get the benefit of a full 1 yr of accrued interest with a 3 mo penalty, at which point, it is up to the individual investor whether or not it makes sense to be in at the current earning with forward looking scenario in the market.
I have heard people say that if inflation stays up is like earning at in one area and paying it out in cost of living, but I present this to you, we are very blessed to at least have the financial ability to be capable of so doing where many are not, so I say thanks be to the Lord for being gracious onto me.