New I Bond Rate 11/1/17 - 4/30/18

Discussion of the Cash portion of the Permanent Portfolio

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jhogue
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New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Mon Oct 16, 2017 9:28 am

The U.S. Treasury announced the new variable rate for I bonds, 2.48 %, purchased on or after November 1.

The old variable rate was 1.96%. The rise in the rate, which is constructed from a formula derived from the CPI-U, is mostly explained by the jump in gasoline prices impacted by the recent hurricanes on oil refineries in the Houston area.
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A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by whatchamacallit » Mon Oct 16, 2017 1:18 pm

Thanks for heads up.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Mon Oct 16, 2017 3:59 pm

Note that I bonds can work as part of a short or a long term investment strategy:

-For the short term, the current I bond rate of 2.48% handily beats the 1 year Treasury rate of 1.43%. If you don’t like the I bond rate a year from now, cash it out and buy something better for a penalty of just 3 months interest. Your option.

-For the long term, I bonds offer inflation-adjusted, interest compounded, federal tax-deferred, and state and local tax exempted returns for 30 years. You can’t get that combination of no-risk, guaranteed features from any Treasury, bank CD, municipal, or corporate bond. A great place for your "deep cash."
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by barrett » Thu Oct 19, 2017 9:42 am

Is the fixed rate still 0%? I thought that information would be released on or about 11/1/17, no?
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by sophie » Thu Oct 19, 2017 4:19 pm

Correct, we have to wait until November 1 to hear about the fixed rate. I think this post is about predicting the variable part of the rate based on the latest CPI report.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Thu Oct 19, 2017 4:34 pm

barrett,

Sorry, I should have added in my OP that the fixed rate will be announced on 11/1/2017.

The I bond composite rate is composed of the combination of a fixed rate and a variable rate. Expectations by close observers are that the fixed rate will remain at 0%. If so, we can expect that the new composite rate will be 2.48%.

For more info, see:

https://tipswatch.com
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Wed Nov 01, 2017 12:10 pm

The U.S. Treasury announced today that the fixed rate for new I bonds will be +0.1%. That means the new composite rate for the period 11/1/17 to 4/30/18 will be +2.58%. Observers on this forum have been waiting to see if the fixed rate would rise from its previous lackluster rate of 0.0%. If so, you should consider buying them up to your $10,000/ SSN limit before the end of the calendar year.

The Treasury announcement notes the following:
"The composite rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the 30-year life of the bond, and the semiannual inflation rate. The 2.58% composite rate for I bonds bought from November 2017 through April 2018 applies for the first six months after the issue date. The composite rate combines a 0.10% fixed rate of return with the 2.48% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The CPI-U increased from 243.801 in March 2017 to 246.819 in September 2017, a six-month change of 1.24%."

For more info, see:

https://www.treasurydirect.gov/news/pre ... atespr.htm
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by boglerdude » Wed Nov 01, 2017 11:49 pm

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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by Xan » Thu Nov 02, 2017 10:51 am

I've finally looked into these I-bonds, and it's pretty exciting. It sounds like an ideal way to hold PP "deep cash" and potentially to save for kids' college at the same time.

There are a number of options:
* You can own them yourself.
* You can put them in your kids' names.

From there:
* You can pay tax on the interest each year (of particular interest if the bonds are in the kids' names and the interest is under the "kidde tax" limit, because it would effectively be tax-free)
* You can defer tax on the interest until you cash out the bond.

If you have the bond in your own name and not your kid's, then if you spend the money on their higher education, the interest is tax-free. (There are income limitations on this, unfortunately, and of course the act of cashing out the bonds makes it harder to stay under the limit.)

You're committed to a year when buying one, but after that you can cash out with only a small (three months' interest) penalty.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Thu Nov 02, 2017 11:58 am

Yay I bonds!

They have a number of interesting features you can’t get elsewhere, which is why I suppose that the Treasury limits your annual purchase to just $10K per year per SSN (+ $5K on your tax refund.)

EE bonds offer the same tax exemption for higher education too. We paid for much of our daughter’s college education with EE bonds and used the tax exemption feature to appreciably lower our tax bill in those years.

For more info on how to fill out the IRS forms, see:

Education Savings Bond Program, married filing jointly less than $146,300 (2017)
https://www.irs.gov/publications/p970/c ... 1000178602
Turbotax creates and file the required form automatically.

I suppose I should restrain my enthusiasm for savings bonds in the Cash quadrant of the PP. Clearly, buying savings bonds will not make you rich. But they will always yield more than 1 year Treasury bills, save on taxes for middle class investors, and offer flexible access to a number of useful features not available from other popular cash alternatives like CD’s and municipal bonds, which do not come with the guarantee of the full faith and credit of the U.S. Treasury.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by Xan » Thu Nov 02, 2017 12:03 pm

jhogue wrote:I suppose I should restrain my enthusiasm for savings bonds in the Cash quadrant of the PP.
I'm beginning to think you haven't been enthusiastic enough!

Yes, it's important to have some cash that's really liquid. But I'd say that PPers hold a lot MORE cash than most other investors, and so offering something to (very safely) juice the returns on cash is most welcome.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Thu Nov 02, 2017 1:20 pm

Xan,

OK,here are some more hopefully useful tips on savings bonds for the PP investor:

-Don’t buy TIPS! Some people might be tempted to buy Treasury Inflation Protected Security (TIPS) because they are backed by the US Treasury. Don’t do it! Unlike US savings bonds, TIPS can and do lose value in a deflationary economy. TIPS also have terrible tax treatment, and unlike US savings bonds they are not tax deferred.

-I think that the best place to keep paper I bonds is a safe deposit box at a local or regional bank or credit union where you also have a small checking account and some physical gold, and physical cash (greenbacks). Smaller banks seem to me to be more interested in providing useful banking services, like depositing the proceeds from the redemption of savings bonds into your local account. They will never come out and say so in public, but Jamie Dimon and his partners in crime at the big-name TBTF banks don’t like US savings bonds and would like to see the Treasury kill the entire program. The 0% expense ratio of savings bonds means they get nothing from the transaction, which drives all those slick bankers crazy. I suspect that is why many of the TBTF banks won’t redeem savings bonds, no matter the amount, and also find it “inconvenient” to rent out safe deposit boxes.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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