I-bond rate is impressive

[carlsbadworker]

7.12%!

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

[gzz]

The catch is you can only buy 10k a year for yourself.

I like the handsome $1000 paper version with Albert Einstein.

[Escoguy]

I’ve owned some for about 20 years, got in the first time back in early 2000 when the fixed rate was 6.5%, those now yield about 10.3%.

Needless to say, buying more now.

Kind of weird that one can borrow at 2.9% for 30 years but get paid 7-10% at least for now.

Often overlooked, the interest is tax deferred.

[Coronita]

following. Wow. everything is electronic now… no longer paper version…

[Coronita]

I bought some and will buy up to the limit for this year for me and kid… thanks for the tip.

[teaboy]

The expected final return on these depends on where you stand on the “Is Inflation Transitory?” thread. 🙂

The current (“Fixed Rate”) interest rate on these is 0% for 30 years until they mature. It only looks good right now due to the additional 7.12% (2 x semiannual inflation rate).

A year ago this was 1.68%, not 7.12%. Who knows where it’ll be next year?
https://www.treasurydirect.gov/indiv/research/indepth/ibonds/IBondRateChart.pdf

Also, very important to note:
When can I cash my I bonds?
After they are 12 months old.

-If you cash an I bond before it is five years old, you will lose the last three months of interest.
-I bonds earn interest for 30 years if you don’t cash the bonds before they mature.
-If you’ve been affected by a disaster, special provisions may apply.
https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iredeem.htm

[Coronita]

[quote=teaboy]The expected final return on these depends on where you stand on the “Is Inflation Transitory?” thread. 🙂

The current (“Fixed Rate”) interest rate on these is 0% for 30 years until they mature. It only looks good right now due to the additional 7.12% (2 x semiannual inflation rate).

A year ago this was 1.68%, not 7.12%. Who knows where it’ll be next year?
https://www.treasurydirect.gov/indiv/research/indepth/ibonds/IBondRateChart.pdf

Also, very important to note:
When can I cash my I bonds?
After they are 12 months old.

-If you cash an I bond before it is five years old, you will lose the last three months of interest.
-I bonds earn interest for 30 years if you don’t cash the bonds before they mature.
-If you’ve been affected by a disaster, special provisions may apply.
https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iredeem.htm%5B/quote%5D

Yup. which is why you shouldn’t put your life savings into it all, or any one area specifically. Spread the risk

[gzz]

I am in the low inflation camp obviously, but 1 year of ~5-7% and another few at 2% and taxes deferred is pretty good.

[sdrealtor]

Camp Matthews? That doesnt exist anymore either

[svelte]

Why does anyone think this is a good deal?

The fixed rate is zero and remains that way for the life of the bond.

Therefore, the rate of the bond is twice the semi-annual inflation rate, ie it is the rate of inflation. And that is calculated twice a year.

In other words, your money is just staying pace with the rate of inflation!

You’re not making money – you’re just breaking even!

[Escoguy]

[quote=svelte]Why does anyone think this is a good deal?

The fixed rate is zero and remains that way for the life of the bond.

Therefore, the rate of the bond is twice the semi-annual inflation rate, ie it is the rate of inflation. And that is calculated twice a year.

In other words, your money is just staying pace with the rate of inflation!

You’re not making money – you’re just breaking even![/quote]

Most bonds, if you buy a bond fund and interest rates rise, well the bond loses value. So if you want bonds without principal risk, this is an option.

The ones I bought 20 years ago are up about 300% and have paced the S&P 500 but that was with an additional 3.5% guaranteed return. I hope inflation peters out in a few years. But who knows, one by product of excessive government spending is inflation.

[Coronita]

[quote=svelte]Why does anyone think this is a good deal?

The fixed rate is zero and remains that way for the life of the bond.

Therefore, the rate of the bond is twice the semi-annual inflation rate, ie it is the rate of inflation. And that is calculated twice a year.

In other words, your money is just staying pace with the rate of inflation!

You’re not making money – you’re just breaking even![/quote]

Well, perhaps I agree with you. Except, the way I look at it, money going into this bucket of my investment wasn’t really my money… It was the bank’s money from the cash out refinance at 3%…

So if this thing can keep above 3% for the next 30 years, I’m not losing money, but the banks sure are 🙂

And it won’t be the entire cash out amount. A small portion of it, to offset potential losses from taking higher risk investments elsewhere.

So in my book, overall, in the worst case scenario, hopefully I don’t end up worse off than 4% combined…lol…

[XBoxBoy]

[quote=svelte]
In other words, your money is just staying pace with the rate of inflation!

You’re not making money – you’re just breaking even![/quote]

What about 10year treasuries? Currently going for a return of 1.43%! How is that anything other than a ridiculously bad investment. Even if inflation does come back down to 2% in the next year or two, you are still guaranteed to be losing value.

[carlsbadworker]

[quote=svelte]Why does anyone think this is a good deal?

The fixed rate is zero and remains that way for the life of the bond.

Therefore, the rate of the bond is twice the semi-annual inflation rate, ie it is the rate of inflation. And that is calculated twice a year.

In other words, your money is just staying pace with the rate of inflation!

You’re not making money – you’re just breaking even![/quote]

In a world of investments full of negative expected return, breaking even looks pretty good:
https://www.gmo.com/americas/research-library/gmo-7-year-asset-class-forecast-october-2021/

[Coronita]

Well, this was an unexpected result.

I made a mistake on my 2019 federal taxes and had to file a 1040x amended return to get back money that I accidentally overpaid. (Basically, I accidentally double counted the capital gains on a custodial account for my kid on both her individual taxes and my own taxes, because of a minor oversight of the TurboTax/Brokerage import tool that imported it into both tax filings)….

Anyway, the IRS returned me the overpaid taxes in 2019…plus interest…And the interest was much more than how much I would have earned leaving the amount in a 2-3 year CD…. So I was curious exactly how much interest is paid for overpaid taxes, and I found this from the IRS…

[quote]
June 24, 2020

Interest on individual 2019 refunds reflected on returns filed by July 15, 2020 will generally be paid from April 15, 2020 until the date of the refund. Interest payments may be received separately from the refund. By law, the interest rate on both overpayment and underpayment of tax is adjusted quarterly. The interest rate for the second quarter, ending on June 30, 2020, is 5% per year, compounded daily. The interest rate for the third quarter, ending September 30, 2020, is 3% per year, compounded daily.
[/quote]

So, yes overpaying your taxes and then asking for a refund does in fact give you better returns than leaving the same money in your 1.5%-2% CD, lol.

[Author]

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