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0 pointsgte525u3y ago0 comments

It's not really golden. It' just i-bond inflation rates are high at the moment.

The bond rates are set per 6 month window - but you get it relative to the purchase date. So if you buy before the last possible day before the rate change date you would get 7.12% (annualized) for 6 months then 9.6% (annualized) for 6 months. If you buy after the rate change, you would get 9.6% (annualized) followed by some yet to be determined yield for 6 months.

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erwincoumans3y ago

So the undetermined inflation rate for November 2022 has to go down to less than 7.12% (annualized) for that (the April case) to be a real "golden" opportunity? How likely is that?

dangle13y ago

In my personal calculations, I've been comparing the return from I bonds to CDs. Right now, the I bond provides higher interest than CDs have provided since the 80s.

However, since the I bond term readjusts in 6 mo intervals, it's possible for CD rates to catch up in the next two years as interest rates rise.

So if there is anything 'golden' about the situation, it's the opportunity to (perhaps briefly) receive 80s-era guaranteed interest rates.

gkuan3y ago

One interesting thing is that even nominal Treasuries are yielding above CDs at the moment but the difference is more like 20 bps or so.

Can you imagine the people who bought i bonds in the 2000s when the fixed yield part of the return was 3.6%? Though they obviously had their ups and downs, but right now if they held on they are sitting on a year of 10%+ yields.

gte525uOP3y ago

Yes. I don't think anyone knows for sure - like 7.12% seemed amazing at the time but we didn't expect an oil shock or a war in europe.

Bear in mind there are some other technicalities with i-bonds. They are all documented on the treasury direct website:

- you have to hold it for a minimum of 12 months

- there are two parts of the bond a fixed rate (currently 0%) which is set for the lifetime of the bond, and the variable rate which is tried to inflation

- if you hold it for less than 5 years when you withdraw there will be a 3mo interest penalty

- you're limited to 10k purchased per SSN, you can get over 10k if you get your tax refund in i-bonds.

jldugger3y ago

More like the interest rate 30y from now has to be higher than 7.12 annualized, since thats the one period that will be different, everything else is just the same but lagged

erwincoumans3y ago

That is serious long thinking. For the comparison April versus May 2032 ibonds case I was assuming a sale after exactly 1 year (and spend it, say on a Europe trip instead of investing it). You would loose out on 3 months interest, selling ibonds before 5 years, so the numbers are a bit different.

redisman3y ago

You don’t have to hold them for 30 years. I’m holding my down payment on them for example until a better option comes along (which probably won’t)

j / k navigate · click thread line to collapse

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erwincoumans3y ago

So the undetermined inflation rate for November 2022 has to go down to less than 7.12% (annualized) for that (the April case) to be a real "golden" opportunity? How likely is that?

dangle13y ago

In my personal calculations, I've been comparing the return from I bonds to CDs. Right now, the I bond provides higher interest than CDs have provided since the 80s.

However, since the I bond term readjusts in 6 mo intervals, it's possible for CD rates to catch up in the next two years as interest rates rise.

So if there is anything 'golden' about the situation, it's the opportunity to (perhaps briefly) receive 80s-era guaranteed interest rates.

gkuan3y ago

One interesting thing is that even nominal Treasuries are yielding above CDs at the moment but the difference is more like 20 bps or so.

gte525uOP3y ago

Yes. I don't think anyone knows for sure - like 7.12% seemed amazing at the time but we didn't expect an oil shock or a war in europe.

Bear in mind there are some other technicalities with i-bonds. They are all documented on the treasury direct website:

- you have to hold it for a minimum of 12 months

- there are two parts of the bond a fixed rate (currently 0%) which is set for the lifetime of the bond, and the variable rate which is tried to inflation

- if you hold it for less than 5 years when you withdraw there will be a 3mo interest penalty

- you're limited to 10k purchased per SSN, you can get over 10k if you get your tax refund in i-bonds.

jldugger3y ago

More like the interest rate 30y from now has to be higher than 7.12 annualized, since thats the one period that will be different, everything else is just the same but lagged

erwincoumans3y ago

redisman3y ago

You don’t have to hold them for 30 years. I’m holding my down payment on them for example until a better option comes along (which probably won’t)

j / k navigate · click thread line to collapse