Think Your Way to Wealth » bonds

I Bond Rate for May 2011 through October 2011- 4.60 %

RC — Tue, 03 May 2011 00:51:33 +0000

May 2011- I Bond Earnings Rate 4.60 %, Fixed Rate 0.0 %

The I Word, or inflation has finally reared its ugly head according to the CPI, which is reflected in the 6 month offering period for I bonds, with a semi-annual inflation rate of 2.30%, and an overall return of 4.60% for at least 6 months. The fixed portion of the i bond is again at 0.0%. I bonds are now more attractive for those looking for a decent interest rate and inflation protection as an investment. I bonds for the last 6 months only paid 0.74%, so this represents quite an increase.

I bonds must be held for at least 1 year. But if you buy them at the end of the month, you get credit for the whole month, effectively making it a minimum of 11 month holding period. If you cash I bonds in before 5 years, you lose 3 months’ worth of interest. But at the current rate of 4.60%, losing 3 months interest would still net you appx. 3.45% after a year, better than you can get just about anywhere else I know of at the moment.

The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 4.60 % earnings rate for I bonds bought from May 2011 through October 2011 will apply for their first six months after issue. The earnings rate combines a 0.0% fixed rate of return with the 2.30% semi-annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).

The fixed rate applies for the 30-year life of I bonds purchased during this six-month period, but since it is 0.0, it doesn’t really come into play for this 6 month offering period.

Here’s how the composite rate for I bonds issued May 2011 – October 2011 was set:

Fixed rate = 0.00%

Semiannual inflation rate = 2.30%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]

Composite rate = [0.0000 + (2 x 0.0230) + ( 0.0000 x 0.0230)]

Composite rate = [0.0000 + 0.0460+ 0.0000000]

Composite rate = 0.0460

Composite rate = 4.60%

Since I bonds are tax-deferred, they can be a useful option to diversify your tax liabilities as part of your overall investment strategy. I bonds are also tax free if used for education, so they can be part of your education savings plan as well.

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I Bond Rates for November 2010 through April 2011- 0.74% Total, Fixed Rate 0.0%

RC — Sun, 14 Nov 2010 03:02:04 +0000

November 2010- I Bond Earnings Rate 0.74%, Fixed Rate 0.0%

I bonds once again have a 0.0% fixed rate this period, making them not as attractive as normal for those looking for a decent interest rate and inflation protection as an investment.

The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 0.74% earnings rate for I bonds bought from November 2010 through April 2011 will apply for their first six months after issue. The earnings rate combines a 0.0% fixed rate of return with the 0.74% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).
The fixed rate applies for the 30-year life of I bonds purchased during this six-month period.

This represents a drop from the last 6 month period (April ‘10 through October ‘10) in the fixed rate from 0.20% to 0.0%, and a drop in the semi-annual inflation rate from 0.77% to 0.37%.

Here’s how the composite rate for I bonds issued November 2010 – April 2011 was set:

Fixed rate = 0.00%
Semiannual inflation rate = 0.37%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
Composite rate = [0.0000 + (2 x 0.0037) + ( 0.0000 x 0.0037)]
Composite rate = [0.0000 + 0.0074 + 0.0000000]
Composite rate = 0.0074
Composite rate = 0.0074
Composite rate = 0.74%

Since I bonds are tax-deferred, they can be an useful option to diversify your tax liabilities as part of your overall investment strategy.
As I have mentioned before, I bonds are also tax free if used for education, so they can be part of your education savings plan as well.

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I Bond Rates for May 2010 through October 2010- 1.74% Total, Fixed Rate 0.20%

RC — Sat, 22 May 2010 15:33:02 +0000

May 2010- I Bond Earnings Rate 1.74%, Fixed Rate 0.20%

The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 1.74% earnings rate for I bonds bought from May 2010 through October 2010 will apply for their first six months after issue. The earnings rate combines a 0.20% fixed rate of return with the 1.54% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).
The fixed rate applies for the 30-year life of I bonds purchased during this six-month period.

This represents a drop from the last 6 month period (November ’09 through April ’10) in the fixed rate from 0.30% to 0.20%, and a drop in the semi-annual inflation rate from 1.53% to 0.77%.

Here’s how the composite rate for I bonds issued May 2010 – October 2010 was set:

Fixed rate = 0.20%
Semiannual inflation rate = 0.77%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
Composite rate = 0.0020 + (2 x 0.0077) + ( 0.0020 x 0.0077)]
Composite rate = [ 0.0020 + 0.0154 + 0.0000154]
Composite rate = 0.0174154]
Composite rate = 0.0174
Composite rate = 1.74%

Since I bonds are tax-deferred, they can be an useful option to diversify your tax liabilities as part of your overall investment strategy.
As I have mentioned before, I bonds are also tax free if used for education, so they can be part of your education savings plan as well.

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November 2009 to May 2010 I Bond Rates- 3.36% Total, Fixed Rate 0.30%

RC — Tue, 24 Nov 2009 03:29:40 +0000

After a 6 month period (May 2009 to November 2009) where I bonds effectively earned a 0% rate of return for the period, the increase in the CPI-U from negative (deflationary) to positive (inflationary) pushed I bonds back into positive yield territory.

November 2008- I Bond Earnings Rate 3.36%, Fixed Rate 0.30%

The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 3.36% earnings rate for I bonds bought from November 2009 through April 2010 will apply for their first six months after issue. The earnings rate combines a 0.30% fixed rate of return with the 3.06% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The fixed rate applies for the 30-year life of I bonds purchased during this six-month period.

Here’s how the composite rate for I bonds issued November 2009 – April 2010 was set:

Fixed rate = 0.30%
Semiannual inflation rate = 1.53%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
Composite rate = 0.0030 + (2 x 0.0153) + ( 0.0030 x 0.0153)]
Composite rate = [ 0.0030 + 0.0306 + 0.0000459]
Composite rate = 0.0336459]
Composite rate = 0.0336
Composite rate = 3.36%

Since I bonds are tax-deferred, they can be an useful option to diversify your tax liabilities as part of your overall asset allocation plan. As I have mentioned before, I bonds are also tax free if used for education, so they can be part of your education savings plan as well.

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I Bonds to Earn 0.0% From May to October, 2009

RC — Sun, 03 May 2009 23:07:59 +0000

Based on a drop in the CPI-U, or Consumer Price Index for Urban Consumers, I Bonds issued between May 1, 2009 and October 31, 2009, will earn an effective earnings rate of 0.0%.

The earnings rate combines a 0.10% fixed rate of return with the -5.56% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). When the inflation rate is less than zero, a bond’s earnings rate is less than its fixed rate (but the earnings rate is never less than zero). The fixed rate applies for the 30-year life of I bonds purchased during this six-month period. The CPI-U decreased from 218.783 to 212.709 from September 2008 through March 2009, a six-month change of -2.78%.

This is bad news for investors who have been turning to inflation protected investments, but should be probably looked at as a short term situation. Don’t forget, I bonds issued in the last 6 month period earned an effective annualized rate of 5.64%, so even getting 0% for the next 6 months would give you 2.82% for 12 months, had you purchased them in the beginning of November of 2008.

Due to the weakened economy, some consumer prices have dropped, especially in energy, such as oil, natural gas, and gasoline. While the risk of deflation is still around, with all of the money that has been pumped into the economy recently, I would not expect a drop when the rates are adjusted in 6 months, I would expect it to be an increase. I think most people expect to see some amount of inflation in the coming months, although I guess you never know.

So although you may earn zero percent the next 6 months on an I bond, your average over the next year could still be positive, and could even be 2% + (this is speculation, of course) depending on what the rate changes to 6 months from now.

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Are I Bonds A Good Investment Option Now?

RC — Tue, 26 Feb 2008 13:00:54 +0000

Is now a good time to invest in I Bonds? With the recent cut in interest rates by the Federal Reserve bank in the last month or so, many online banks, such as ING Direct , have lowered their interest rates, most under 3.5%. While this is better than 0.2% in a regular local bank savings account, people looking for the most out of their money are always on the lookout for better returns. Well, the I bond currently pays 4.28%. I Bonds, a type of savings bond issued by the U.S. Treasury, pay a composite or total rate, which is a combination of an inflation component and a fixed component. Below is a table of I Bond rates for the past 2+ years. With I bond, the fixed rate remains the same for the life of the bond, while the inflation rate “resets” every six months, for a new composite or total rate. Underneath the table is an explanation of how the composite rate is calculated.

DATE            INFLATION                 FIXED             COMPOSITE
RATES*                  RATE               (TOTAL)RATE
1-Nov-07        1.53%     1-Nov-07       1.20%              4.27836%
1-May-07       1.21%      1-May-07      1.30%             3.73573%
1-Nov-06       1.55%      1-Nov-06       1.40%             4.52170%
1-May-06      0.50%      1-May-06      1.40%             2.40700%
1-Nov-05       2.85%      1-Nov-05       1.00%            6.72850%
1-May-05      1.79%       1-May-05      1.20%            4.80148%

Here’s how the composite rate for I bonds issued Nov. 2007 – Apr. 2008 was set:

Fixed rate = 1.20%
Semiannual inflation rate = 1.53%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
Composite rate = [0.0120 + (2 x 0.0153) + (0.0120 x 0.0153)]
Composite rate = [0.0120 + 0.0306 + 0.0001836]
Composite rate = [0.0427836]
Composite rate = 0.0428
Composite rate = 4.28%

Historical Averages: 2 Year average 4.41%, 10 Year average 4.65%

I bond Pros and Cons:

Pros:

I bonds are currently returning 4.28%, a pretty good rate considering ING, for example, is returning 3.40%
The interest on I bonds can be taxed deferred, meaning they do not have to be reported on a yearly basis (as savings account interest would be)
The interest from I bonds are tax free if used for education.

Cons:

I bonds cannot be cashed in for 1 year. So if you have any idea that you may need the money in that time frame, this is not an option for you.
If you cash I bonds in before 5 years, there is a penalty of 3 months interest. (i.e., you lose 3 months worth of interest.)
I bond rates change twice a year, the next rate change will take place May 1st (The rates are usually released a few weeks earlier) So that 4.28% could (and may) go down, leaving you locked in at a lower rate for at least six months. Although the historical averarage over the last 10 years is over 4.5%.

If you have money you will not need for at least a year, I bonds may be an option to look in to. If you cash them in before 5 years you will lose 3 months interest. If you will not need the money for 5 plus years, they could end up being pretty good. Using them as part of education savings make them quite attractive-especially with the low risk.
Since you can purchase any amount starting with $25.00, adding them to your investment portfolio in small increments may be something to consider. By starting with small increments, and adding them on a monthy basis, you can create a “ladder” of I bonds, and after 60 months, each one will become “cashable” with full interest.

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