November 2008 I Bond Rate- 5.64% Total, 0.70% Fixed

RC — Tue, 04 Nov 2008 04:56:09 +0000

Because November 1st fell on a weekend, we’ve had to wait until today, November 3rd, to get the new I bond rates for the next 6 months.

November 2008- I Bond Earnings Rate 5.64%, Fixed Rate 0.70%

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 5.64% earnings rate for I bonds bought from November 2008 through April 2009 will apply for their first six months after issue. The earnings rate combines a 0.70% fixed rate of return with the 4.92% 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. The CPI-U increased from 213.528 to 218.783 from March through September 2008,
a six-month increase of 2.46%.

Here’s how the composite rate for I bonds issued Nov 2008 – Apr. 2009 was set:

Fixed rate = 0.70%
Semiannual inflation rate = 2.46%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
Composite rate = [0.0070 + (2 x 0.0246) + (0.0070 x 0.0246)]
Composite rate = [0.0070 + 0.0492 + 0.0001722]
Composite rate = [0.0563722]
Composite rate = 0.0564
Composite rate = 5.64%

Check out my article on I bonds if you are trying to decide if I bonds are a good option for you.

Some of the positive features of I bonds include:

I bonds are currently returning 5.64%, a pretty good rate considering ING, for example, is returning 2.75%
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.

Things to consider:

I bonds must be held 1 year (really 11 months if you buy at the end of the month)
If you cash I bonds in before 5 years time, you give up 3 months interest as a penalty
Only the fixed portion is guaranteed-the inflation indexed portion is variable and changes every 6 months-and theoretically could go to 0%.

Thoughts on November 2008 rate:

The rise in the fixed portion from 0.0% in April 2008 to 0.7% is a better deal than last April, but with the fed lowering interest rates again recently, it is hard to say if inflation will stay up or will start to decrease, lowering the overall rate. They do look more attractive than in April, and if the rate stayed at 5.64% for a year (although it would change in April 2009) and you cashed in after 1 year and payed the 3 month penalty, you would still be looking at a 4.23% return, which is not too bad compared to high interest savings accounts, most of which offer around 3% +/- these days.

The Freshman Fund- A Great Idea for Increasing 529 Plan College Savings

RC — Thu, 11 Sep 2008 13:30:06 +0000

There’s a new company on the block to help you save more money for college for your children. Called the Freshman Fund, it allow you to receive direct contributions to a 529 Plan, and is free for both the gift giver and the receiver. In the past, for most 529 plans, someone would either have to send you the money and you would have to write a check and send it in to your kid’s plan, or they would have to fill out a special form every time they wanted to make a contribution. Not really very convenient when it comes to gift-giving. The Freshman Fund takes care of that problem, and makes it simple for grandparents, other relatives, or friends contribute directly towards your child’s college education.
You now have an answer for the question “What should I get Johnny for his birthday“, or Christmas, etc. I don’t know about you, but it seems like my kids get a lot more toys than I ever did. Receiving a few less toys for their birthday or Christmas is not going to be a problem-for them or me. So if someone asks you what to get them, or you have a relative or friend who like to give them a check, cash, or a savings bond, you now have a place you can direct them that can help pay for your child’s education. This is a much better alternative than thinking up another toy suggestion that will will likely no longer be played with in a few months.

This also works especially great for relatives, such as grandparents, or others who might want to get the child a small gift and then give them a check or savings bond. Instead of receiving a Series EE savings bond (currently paying a paltry 1.40%), your child can receive a contribution to their 529 Plan. It can then earn decent interest and reap the benefits of compounding until your child is ready for college.

How does it work?

You sign up for a free account on the Freshman Fund website, and then link your child’s 529 Plan to the account. Don’t have a 529 Plan yet? The website will help you get started with information and direct you where and how to set one up.

Let people know where to go- Let people know that they can contribute to your child’s 529 plan by going to the Freshman Fund website. You don’t have to be pushy with this, but I will let my children’s grandparents know about it and that it would be preferred to a check or savings bond. I think most people will be happy knowing that their gift will be used for education. And if someone else asks what to get them, I will certainly let them know about the Freshman Fund.

I don’t know about you, but this sounded like a great idea when I first heard about it. As soon as I get my children’s 529 plans completely set up-which I have actually already started- I will be signing up with the Freshman Fund. I will update you on my experience with it.

Additional information-

The website keeps your personal information private and encrypted, so you don’t have to worry about identity theft, etc.
You can send someone without a 529 Plan a gift certificate, which the FF holds until they set up a plan-seems like a great way to get someone started!

Think Your Way to Wealth » saving for college

November 2008 I Bond Rate- 5.64% Total, 0.70% Fixed

November 2008- I Bond Earnings Rate 5.64%, Fixed Rate 0.70%

The Freshman Fund- A Great Idea for Increasing 529 Plan College Savings