New I-Bond Variable Rate, 10/12/23

yogibearbull

New I-Bond Variable Rate, 10/12/23

Semiannual inflation rate 1.9723%

Composite rate = b + 2f + bf, where b is the base/fixed rate (annual), f is the semiannual inflation rate.

Base/fixed rate should go up from 0.90% to 0.90-1.5% (compare with the current 5-yr TIPS rate of 2.39%)

So, the estimated I-Bond rate range for 11/1/23 is 4.86-5.47%.

The actual I-Bond rate will be posted on 11/1/23.

https://ybbpersonalfinance.proboards.com/post/1209/thread

yogibearbull

Social Security COLA for 2024 will be +3.2%.

Anna

Wow, that was timely. The sun isn't up yet in the Pacific NorthWest.

msf

Here's an interesting piece written a week ago on divining the next fixed rate. As the writer states, there is no rule that the Treasury follows, just heuristics.
https://tipswatch.com/2023/10/08/the-i-bonds-fixed-rate-will-rise-but-by-how-much/

TreasuryDirect provides this cryptic information:

The Secretary of the Treasury, or the Secretary’s designee, determines the fixed rate. The rate is based on market rates that have been adjusted to account for the value of components unique to savings bonds. These include the early redemption put option, tax deferral feature, deferred purchase feature, and Treasury’s administrative costs.

Translation: The Treasury looks at current real yields (such as market yields on Treasury Inflation-Protected Securities) and adjusts those yields to reflect the advantages of I Bonds: primarily tax-deferred interest and a flexible maturity.

He goes on to suggest two ways of guessing the next rate:

He discusses his thinking in detail. He also has a followup in the posts on the page. There he says that real rates have dropped significantly in the last week (since he wrote the piece), making a 1.2% fixed rate more likely than a week ago.

Regardless, I bonds don't look like a good substitute for a short term 1-year T-bill. That would yield roughly
½ x 4.3% + ¼ x 5.5% (guess) ≈ 3.5% (after 3 mo penalty)

yogibearbull

For many I-Bond holders, the decision may to hold or fold. If they bought last year, they have to wait at least 12 months, and then up to 5 years, there is 3 month interest penalty (Treasury Direct value shown is net of applicable penalty). It is better to sell them at 6 month intervals from the purchase date to make full use of current rates. Also, sell early in the month to still get whole month's interest (flip side is to buy late in the month, although most won't be buying).

msf

To clarify: you don't get interest in the month that you sell.

So if you sell at the beginning of a month you've only lost a day's interest (for that month). But if you sell near the end of the month, you get nothing for those 30 days or so.

It is better to sell them at 6 month intervals from the purchase date to make full use of current rates.

That works if you're out of the penalty period (savings bonds held for at least 5 years). If you're subject to a 3 month penalty, then it's better to hold the bonds for 3 months past the final month of the old rates. That way, you get the full use of the older (presumably higher) rates. You just lose 3 months interest at the new (presumably lower) rate.

https://keilfp.com/blogpodcast/when-to-cash-out-i-bonds/#When_Should_I_Cash_Out_My_I_Bonds