I-Bond Rate 11/1/16 - 4/30/17

Discussion of the Cash portion of the Permanent Portfolio

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barrett
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I-Bond Rate 11/1/16 - 4/30/17

Post by barrett » Tue Nov 01, 2016 11:38 am

So the new I-Bond rate is 2.76%. That's based on a fixed rate of zero and the semiannual inflation number of 1.38%. Incidentally, that inflation data includes the months April to September so the 1.38% number has been out for a couple of weeks now.

Thoughts? Feelings? Regrets? Complaints?
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sophie
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Re: I-Bond Rate 11/1/16 - 4/30/17

Post by sophie » Tue Nov 01, 2016 2:35 pm

So the I-Bond fixed rate is back to zero. Sigh. I guess that makes sense.

They're still a pretty good deal compared to, say, an online savings account, even with the occasional zero percent interest periods. I'm not planning to buy any this year though. I set myself a rule that i bonds and > 1 year Treasuries need to be limited to < 1/3 my cash holdings - because I don't want to have to sell them before retirement, or in a rebalance.
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Re: I-Bond Rate 11/1/16 - 4/30/17

Post by boglerdude » Fri Nov 04, 2016 12:50 am

Will this push banks to raise CD rates
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Re: I-Bond Rate 11/1/16 - 4/30/17

Post by barrett » Fri Nov 04, 2016 5:29 am

boglerdude wrote:Will this push banks to raise CD rates
That's a good question. Wish I had the answer! I-Bonds probably suffer some from poor advertising and also the restrictive redemption penalties in the first five years of owning them. I don't follow CD rates very closely but I don't believe there's been a rate jump this week. Remember that one is not locking in that 2.76% rate for an extended period of time. It's only applicable until the next rate (based on inflation numbers from September through March) is announced on 5/1/17. Much would seem to depend on how big the spread is between CDs and I-Bonds... and for how long that spread lasts, I guess. But a saver who is parking cash for the next six months knows that they can make something on a CD. With an I-Bond, they can't even cash out until the 12-month mark.

This is from Treasury Direct:

When can I cash (redeem) an I bond if I need the money?

You can cash your Series I bonds anytime after 12 months. You receive the original purchase price plus interest earnings. I bonds are meant to be longer-term investments; if you redeem an I bond within the first 5 years, you'll lose your last 3 months interest. For example, if you redeem an I bond after 18 months, you'll receive the first 15 months of interest.
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Re: I-Bond Rate 11/1/16 - 4/30/17

Post by MachineGhost » Fri Nov 04, 2016 12:21 pm

Three months is hardly restrictive, its almost a free lunch to get 30-year yields without the downside risk nor be locked into it for that length of time. If fixed rates go up, you can sell for virtually no loss and upgrade. Try that with T-Bonds.
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Re: I-Bond Rate 11/1/16 - 4/30/17

Post by boglerdude » Sun Nov 06, 2016 10:41 pm

2.76%...so the Fed has exceeded their 2% inflation limit?
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Re: I-Bond Rate 11/1/16 - 4/30/17

Post by barrett » Mon Nov 07, 2016 10:06 am

boglerdude wrote:2.76%...so the Fed has exceeded their 2% inflation limit?
I think it's more of a target than a limit but my guess is that they would be thrilled to see
inflation higher than 2%. They have something in their toolbox to deal with inflation and
basically nothing left to deal with deflation.
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Re: I-Bond Rate 11/1/16 - 4/30/17

Post by MachineGhost » Mon Nov 07, 2016 10:25 am

2% target is on the PCE which excludes food and energy as if we all live without eating or electricity, etc..

I'll tell you one thing... when a steak goes up in price, I don't substitute hamburger for it. I want a bloody steak!
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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