Not a Good Time for I-Bonds
May. 1st, 2015 06:28 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
livingdebAs you may know, I-bonds have a two-part interest rate. One part is based on the rate of inflation over the past six months; this gives you protection against inflation. It changes every six months. The other part is a fixed rate that is basically added to the other part. (The actual, slightly more complicated formula is explained on Treasury Direct's IRA Rates and Terms page.) Finally, if inflation is so negative that it wipes out your entire fixed rate, you actually just earn 0% instead of losing money (more inflation protection!). So, since I was raised partly in the 1970s, I can't help liking these.
In general. Not this month.
New I-bonds for the next six months will have a fixed interest rate of 0%. Sadly, this is common nowadays, but so long as inflation is above normal bank interest rates, you might still be interested.
Except that inflation over the last six months has been measured as -0.8%. So your total interest rate will be zero.
So, I guess our government doesn't need to sell any of these? Or somebody's buying them anyway?
The only reason to buy them now is if you are maxing out your purchases every year to keep this portion of your portfolio in line with the other parts of your portfolio. Even so, I'd wait until November when there will be new numbers. Even if those numbers turn out to be just as bad, you'd have to live through them anyway if you bought I-bonds now. (You have to wait at least one year to cash them out.)
As soon as the 0% fixed-rate I-bonds I already own have earned 0% for three months, I will sell them (and pay the penalty of three months of interest, which by then will be no penalty at all) and move the money into my online savings account, at least for a little while. I'm willing to give up the time I've put in towards the five years you need to own an I-bond before you don't have to pay a penalty. That's because I've been buying these with money I would normally have put into savings anyway. (I've been focusing my investments in my Roth IRA, figuring I could build up my I-bonds later.)
If you have US savings bonds, you can find out what the story is by entering your information at Treasury Direct's savings bond calculator. The interest rate they show is the combined rate you are earning that month. The value shown is the amount you could cash them for that month (the three-month penalty is already taken into consideration).
You also can enter the date for future months through November 2015. Three months after your interest rate goes to 0, you can see your value stop increasing.
In general. Not this month.
New I-bonds for the next six months will have a fixed interest rate of 0%. Sadly, this is common nowadays, but so long as inflation is above normal bank interest rates, you might still be interested.
Except that inflation over the last six months has been measured as -0.8%. So your total interest rate will be zero.
So, I guess our government doesn't need to sell any of these? Or somebody's buying them anyway?
The only reason to buy them now is if you are maxing out your purchases every year to keep this portion of your portfolio in line with the other parts of your portfolio. Even so, I'd wait until November when there will be new numbers. Even if those numbers turn out to be just as bad, you'd have to live through them anyway if you bought I-bonds now. (You have to wait at least one year to cash them out.)
As soon as the 0% fixed-rate I-bonds I already own have earned 0% for three months, I will sell them (and pay the penalty of three months of interest, which by then will be no penalty at all) and move the money into my online savings account, at least for a little while. I'm willing to give up the time I've put in towards the five years you need to own an I-bond before you don't have to pay a penalty. That's because I've been buying these with money I would normally have put into savings anyway. (I've been focusing my investments in my Roth IRA, figuring I could build up my I-bonds later.)
If you have US savings bonds, you can find out what the story is by entering your information at Treasury Direct's savings bond calculator. The interest rate they show is the combined rate you are earning that month. The value shown is the amount you could cash them for that month (the three-month penalty is already taken into consideration).
You also can enter the date for future months through November 2015. Three months after your interest rate goes to 0, you can see your value stop increasing.