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

Discussion of the Cash portion of the Permanent Portfolio

Moderator: Global Moderator

User avatar
jhogue
Executive Member
Executive Member
Posts: 567
Joined: Wed Jun 28, 2017 10:47 am

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.
“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!"
whatchamacallit
Executive Member
Executive Member
Posts: 270
Joined: Mon Oct 01, 2012 7:32 pm

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.
User avatar
jhogue
Executive Member
Executive Member
Posts: 567
Joined: Wed Jun 28, 2017 10:47 am

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!"
barrett
Executive Member
Executive Member
Posts: 1584
Joined: Sat Jan 04, 2014 2:54 pm

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?
User avatar
sophie
Executive Member
Executive Member
Posts: 4287
Joined: Mon Apr 23, 2012 7:15 pm

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.
User avatar
jhogue
Executive Member
Executive Member
Posts: 567
Joined: Wed Jun 28, 2017 10:47 am

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!"
User avatar
jhogue
Executive Member
Executive Member
Posts: 567
Joined: Wed Jun 28, 2017 10:47 am

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!"
boglerdude
Executive Member
Executive Member
Posts: 711
Joined: Wed Aug 10, 2016 1:40 am
Contact:

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

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

User avatar
Xan
Administrator
Administrator
Posts: 3260
Joined: Tue Mar 13, 2012 1:51 pm

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.
User avatar
jhogue
Executive Member
Executive Member
Posts: 567
Joined: Wed Jun 28, 2017 10:47 am

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!"
User avatar
Xan
Administrator
Administrator
Posts: 3260
Joined: Tue Mar 13, 2012 1:51 pm

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.
User avatar
jhogue
Executive Member
Executive Member
Posts: 567
Joined: Wed Jun 28, 2017 10:47 am

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!"
User avatar
Xan
Administrator
Administrator
Posts: 3260
Joined: Tue Mar 13, 2012 1:51 pm

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

Post by Xan » Mon Nov 06, 2017 10:04 pm

No worries, I'm not the least tempted on TIPS!

My tentative thinking is to put a bunch of my PP "deep cash" into I bonds. I believe this to be better than putting money into a 529 because of its flexibility. If we're doing well enough to pay for college when the time comes, then we have some tax advantages. If not, then it can still be our retirement money. It also fits in to our investment scheme, which a 529 plan wouldn't. With a 529 I would need to have a PP for us, and then the 529 investing in what they offer me to invest in and paying whatever fees. Using savings bonds, the "college savings" are nothing other than earmarked deep cash in the PP which is (for cash) paying a great return.

Disadvantages:
* The savings bond income limit on the tax-free-ness for educational spending.
* 529 can be used tax-free on things like room & board which savings bonds can't.

I'm also tossing around the idea of putting at least some of the bonds in the kids' names. Of course that pretty much means it has to be used for education. And it means that when they turn 18 they could snort the whole thing up their noses or something... But do I have to tell them it exists?
User avatar
sophie
Executive Member
Executive Member
Posts: 4287
Joined: Mon Apr 23, 2012 7:15 pm

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

Post by sophie » Tue Nov 07, 2017 6:45 am

Have any of you been following the Bogleheads forum discussion of Treasury Direct's security?

It appears they've done away with the medallion signature requirement to link a new bank account. I tested it and yes, it's now very easy to do online and there is no verification whatsoever, not even the "deposit $0.01 and confirm amount" type.

This is all the more concerning because Treasury Direct's stated policy is that if the account or site is hacked, you are responsible for all losses. In contrast, the major brokerages can be relied on to make you whole in case of a security breach. I have this same concern about Perth Mint, which fortunately still makes it very difficult to switch bank accounts and also limits to one account at a time.
barrett
Executive Member
Executive Member
Posts: 1584
Joined: Sat Jan 04, 2014 2:54 pm

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

Post by barrett » Tue Nov 07, 2017 7:00 am

Xan wrote:I'm also tossing around the idea of putting at least some of the bonds in the kids' names. Of course that pretty much means it has to be used for education. And it means that when they turn 18 they could snort the whole thing up their noses or something... But do I have to tell them it exists?
One thing to consider is that if you are trying to maximize financial aid for your kids is that the FAFSA and the school FAOs (financial aid officers) count assets in the kids' name more heavily than assets in the parents' name. It's a terrible system for a kid who works a lot in high school because after a certain point (I think around $6,000 or $7,000 of income), much of what a kid earns gets snagged by the school they attend (or, more precisely, it raises the EFC or expected family contribution).

We ended up having about half of what was needed for our daughter's undergraduate studies in 529s. We started those in 2007 so for the most part we had a favorable stock market driving returns in those accounts. Our only choice on the 529s was how aggressive to be with stocks versus bonds, a percentage that automatically skews more toward bonds as the kid approaches college age.
User avatar
jhogue
Executive Member
Executive Member
Posts: 567
Joined: Wed Jun 28, 2017 10:47 am

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

Post by jhogue » Wed Nov 08, 2017 1:17 pm

Xan wrote:No worries, I'm not the least tempted on TIPS!

My tentative thinking is to put a bunch of my PP "deep cash" into I bonds. I believe this to be better than putting money into a 529 because of its flexibility. If we're doing well enough to pay for college when the time comes, then we have some tax advantages. If not, then it can still be our retirement money. It also fits in to our investment scheme, which a 529 plan wouldn't. With a 529 I would need to have a PP for us, and then the 529 investing in what they offer me to invest in and paying whatever fees. Using savings bonds, the "college savings" are nothing other than earmarked deep cash in the PP which is (for cash) paying a great return.

Disadvantages:
* The savings bond income limit on the tax-free-ness for educational spending.
* 529 can be used tax-free on things like room & board which savings bonds can't.

I'm also tossing around the idea of putting at least some of the bonds in the kids' names. Of course that pretty much means it has to be used for education. And it means that when they turn 18 they could snort the whole thing up their noses or something... But do I have to tell them it exists?
Xan,

It is impossible to generalize about investment decisions once you throw the intricacies of FAFSA, income limitations, and taxes into the mix. But let me focus my thoughts on some points that you might find helpful:

-I like your concept of “earmarking” I bonds in your PP Cash for higher education because it is simple and flexible, but it still stays within Uncle Harry’s established bounds of safety, stability, and liquidity. You do not want to be tied to the complexities of additional requirements or potential penalties involved with establishing a 529 account.

-Over 10 or 20 years, an I bond ladder would have no principal risk and far-less volatility compared to a 529 filled with stock mutual funds—especially with the market indices now at an all time high.

-You can buy additional I bonds in your kids’ names and pay their taxes on an annual basis, if that makes tax sense for you and you have already reached your maximum annual purchase limit. Once you gift them, however, those funds become theirs and they will have authority over them when they turn 18. See treasurydirect.com for details about minor accounts.

-Don’t forget that fully funding your retirement comes first. As the saying goes, you can borrow to fund college, but you can’t borrow to fund retirement. The cool thing about I bonds is that buying them means you don’t have to choose one over the other; they can do both.
“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!"
barrett
Executive Member
Executive Member
Posts: 1584
Joined: Sat Jan 04, 2014 2:54 pm

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

Post by barrett » Wed Nov 08, 2017 1:52 pm

Not trying to hijack the thread away from I-Bonds but I would again caution against having a lot of assets in your kids' names for college financial aid purposes. See the following link:

https://www.edvisors.com/fafsa/secrets/ ... nt-assets/

From my understanding, having assets in your kids' names raises your EFC (expected family contribution) when filling out the FAFSA.

A good book on the subject is Paying for College Without Going Broke. The 2018 edition should be out soon.

Of course if your kids are applying to schools that require you to fill out the CSS form, the rules are different in that those schools will be looking at a greater range of parent assets.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3214
Joined: Fri Jan 30, 2015 5:54 am

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

Post by ochotona » Wed Nov 08, 2017 7:23 pm

Just got my I-bonds for 2017. Nice feeling.
User avatar
jhogue
Executive Member
Executive Member
Posts: 567
Joined: Wed Jun 28, 2017 10:47 am

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

Post by jhogue » Wed Nov 08, 2017 10:24 pm

barrett wrote:Not trying to hijack the thread away from I-Bonds but I would again caution against having a lot of assets in your kids' names for college financial aid purposes. See the following link:

https://www.edvisors.com/fafsa/secrets/ ... nt-assets/

From my understanding, having assets in your kids' names raises your EFC (expected family contribution) when filling out the FAFSA.

A good book on the subject is Paying for College Without Going Broke. The 2018 edition should be out soon.

Of course if your kids are applying to schools that require you to fill out the CSS form, the rules are different in that those schools will be looking at a greater range of parent assets.
Thanks for the citations for sources on college financial aid. I absolutely agree with you that putting assets in kids’ names raises your EFC when it comes time to submit FAFSA documents. And that can be a problem.

To clarify my previous post to Xan, you CAN title I bonds in your child’s name, but I would ONLY do it AFTER I had filled every other tax deferred retirement account first AND had already bought the full annual allotment of I bonds. You will save some federal taxes on the child’s I bonds taxed at their lower marginal tax rate if you choose to pay taxes on an annual basis, but you will have to balance that against the increase in your EFC, as indicated in the sources barrett cites.

Xan did not give the age of his children, but an alternate way to increase his savings bond holdings might be to consider buying an additional allotment of EE bonds, which double in value in 20 years, but have the same federal, state, and local tax treatment as I bonds. EE bonds currently carry an attractive guaranteed 3.53% yield if held for 20 years, but should be treated as “deeper cash” and must be actively managed, as I have written about in another thread.

In fact, we paid for our daughter’s college using a combination of older generation EE bonds, cash flow, and a smaller chunk of federal backed loans that we paid off after graduation but before any interest accrued. We did not put any assets in her name, nor did I establish a 529. I still regard 529 plans as a needless financial complication, in which parents get penalized for withdrawing funds not spent on college, often get poor or limited choices in stock and bond funds, and can get stuck with high fees and fund expense ratios that drag down investment returns. In addition to all those problems, stock market returns are likely to be lower over the next ten years than they were over the last ten years. Do you want to invest your kids’ college money, or do you feel like speculating?

There are certainly many different successful strategies to pay for college. A ladder of savings bonds inside of a Permanent Portfolio has the virtues of simplicity and the powerful effect of returns guaranteed by 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!"
User avatar
jhogue
Executive Member
Executive Member
Posts: 567
Joined: Wed Jun 28, 2017 10:47 am

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

Post by jhogue » Wed Nov 08, 2017 11:07 pm

ochotona wrote:Just got my I-bonds for 2017. Nice feeling.
Current I bond rate = 2.58 %

Current 5 year CD = 2.40%

Current 20 year Treasury bond = 2.54%

Have some cake and eat it too!
“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!"
whatchamacallit
Executive Member
Executive Member
Posts: 270
Joined: Mon Oct 01, 2012 7:32 pm

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

Post by whatchamacallit » Thu Nov 09, 2017 8:18 am

I am currently also only doing I bonds and EE bonds for possible college savings but there is another advantage my state has for 529 plans.

You can deduct up to $4000 each year per married couple for your state income which I think could come out to about ~6% instant gain for that year you use deduction.

Not a ton of money but something I might be considering the last few years before college starts if it looks imminent.
User avatar
jhogue
Executive Member
Executive Member
Posts: 567
Joined: Wed Jun 28, 2017 10:47 am

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

Post by jhogue » Thu Nov 09, 2017 12:02 pm

Which state plan?
“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!"
whatchamacallit
Executive Member
Executive Member
Posts: 270
Joined: Mon Oct 01, 2012 7:32 pm

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

Post by whatchamacallit » Thu Nov 09, 2017 12:43 pm

http://www.savingforcollege.com/compare ... _questions

Looks like many states have deduction.

Edit: Trying to fix link.
Last edited by whatchamacallit on Thu Nov 09, 2017 3:18 pm, edited 1 time in total.
User avatar
pugchief
Executive Member
Executive Member
Posts: 4318
Joined: Tue Jun 26, 2012 2:41 pm
Location: suburbs of Chicago, IL

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

Post by pugchief » Thu Nov 09, 2017 12:47 pm

whatchamacallit wrote:I am currently also only doing I bonds and EE bonds for possible college savings but there is another advantage my state has for 529 plans.

You can deduct up to $4000 each year per married couple for your state income which I think could come out to about ~6% instant gain for that year you use deduction.

Not a ton of money but something I might be considering the last few years before college starts if it looks imminent.
jhogue wrote:Which state plan?
IL has a similar deal. You can deduct up to $10,000 of 529 contributions [$20,000 if married filing jointly] on your state income tax. That equates to an instant 4.75% instant gain on the investment.

edit: I see that while I was typing, whatchamacallit posted a whole list.
User avatar
jhogue
Executive Member
Executive Member
Posts: 567
Joined: Wed Jun 28, 2017 10:47 am

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

Post by jhogue » Thu Nov 09, 2017 3:07 pm

I bonds and EE bonds have always been free from state and local income taxes. There is no cap.
“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!"
Post Reply