I never thought I would consider Ibonds at 1.2% but I am.
I have read this board for quite awhile now and thought I
would throw this out for a few thoughts. I have allocated
money to Penfed CD's to the max, and I also have brokerage
CD's in my 401k, I also have Dodbx, Pttrx, Vwinx, I have my share
of stock exposure. Now to the point I have been loading up
a 3.85% Federal credit union savings account that is taxable.
That 1.2% Ibond is starting to look inviting. Yes I choked on
those words. Any body feel like checking their crystal ball.

Pappy

Now to the point I have been loading up
a 3.85% Federal credit union savings account that is taxable.
That 1.2% Ibond is starting to look inviting. Yes I choked on
those words. Any body feel like checking their crystal ball.

I have a CD coming due this week, so I am very much in the same boat. I can get 4% rolling it over at my regular CU. I don't think Pen Fed is enough higher to start reaching NCUA limits there, although in theory we can do $400,000.

Choices are: roll over at 4%; liquidate to short term (money market, 3 or 6 month CD for purpose of improving cash flow of ladder for long term); I-bond (also liquid down the road).

I may be wrong, but I am working on the assumption interest rates are staying down for at least a year. I-bond fixed rate is an anomaly, because rate was set in November before rates crashed even more. 4% after state taxes is 3.83%. A 6 month penalty on a CD is 2% (if I take a hit in 2 years or 3 years to get a higher rate.) A hit on an I-bond is only 3 months, and could be pretty minimal if done during a low CPI-U installment.

So, assuming I cash out I-bond at current federal tax bracket, I'm looking at about 2.6% CPI-U over 5-years (after compounding advantage) to break even with CD, ignoring the cash out early option. I don't expect to be in a lower tax bracket in 5 years, but probably will be in 7 years. The difference between 25% taxes and 15% taxes on 4% (ignoring compounding) is another 40 basis points, which would mean 2.2% CPI-U adjustment as the break-even point.

I'm sure real inflation will be higher than 2.6%. Traders don't think CPI-U adjustment will be that high over next 5 years.

So, bottom line is I am leaning toward holding my nose and going for I-bond (probably several to have more cash out flexibility) as opposed to holding nose and rolling over or holding nose and going short term.

Then there's the: what about more risk question? (GNMA fund, junk fund.) Or perhaps mix and match.

>> I'm sure real inflation will be higher than 2.6%. Traders don't think CPI-U adjustment will be that high over next 5 years. <<

Traders obviously don't believe "real inflation" as most people feel it will be fully incorporated into the CPI.

#29

Traders obviously don't believe "real inflation" as most people feel it will be fully incorporated into the CPI.

Isn't inflation just a reversion to the mean? The past couple of decades have been very good to the poor; not only in the US, but world-wide.

Hedge

OK to the Ibonds at least with the new restrictions I don't have
to worry about a 60k mistake only a 20k mistake. Looking at the
10 year tips the Ibonds definitely seem like the better deal. If
I had only bought the tips when I enquired about them at 2.5%.
Just didn't seem like a good enough deal, funny now. At least I
listened and acted on the penfed 6.25% thanks to this board.

I am assuming that the Ibond new fixed rate portion
will be drastically cut on May 1. Already had the Treasurey
direct account setup so its just a matter of
a transfer and a click.

Pappy

The best website I have found for US Savings Bond information is Tom Adams "Savings Bond Advisor". The site is free, and contains a wealth of information on all types of Savings Bonds. He also provides free e-mail alerts when material events relavant to Savings Bonds occurs and is very willing to answer questions. If you click on the Fact Sheet it gives a nice comparison of Savings Bonds compared to other low risk investments.

http://www.savings-bond-advisor.com/

DM

The best website I have found for US Savings Bond information is TMF Bonds and Fixed income board, followed by Treasury Direct's own site.

We aren't into promoting our advice, either.

This is a new listing at my Fidelity Alert for TIPS.


UNITED STATES TREAS NTS 01.62500% 01/15/2018 TIPS
Expected coupon 1.625- Maturity date 01/15/2018 - Expected yield 1.230-
Inflation factor 1.00892 --Auction close date 04/10/2008 --
Settelment date 04/15/2008

Can someone lay out a comparison with IBonds and CD that might fit in the ongoing discussion? It may help many of us understand better.

I used Treasury direct and my local bank to max out my
Ibond purchase today. Pretty much painless as most have
indicated. Now if I could just turn back the clock
prior to the limitation change. Oh well now I am
dreaming.

Pappy

>> Now if I could just turn back the clock
prior to the limitation change. <<

I wish I could turn back the clock to 2000 when I bought $4,000 of them. That was all I could afford at the time, and that was scraping the bottom of the bowl.

At 3.4% over inflation, guaranteed and tax-deferred, I'd move the time machine back to 2000 and take out a HELOC on the house in California and buy the maximum.

Oh, and sell most of my stocks for a couple of years while I was at it, too.

Ah, hindsight...

#29

>> Now if I could just turn back the clock
prior to the limitation change. <<

I wish I could turn back the clock to 2000 when I bought $4,000 of them. That was all I could afford at the time, and that was scraping the bottom of the bowl.

At 3.4% over inflation, guaranteed and tax-deferred, I'd move the time machine back to 2000 and take out a HELOC on the house in California and buy the maximum.

Oh, and sell most of my stocks for a couple of years while I was at it, too.

Ah, hindsight...

Ah yes, good old hindsight. I got some at 3.0% in 2001, but some people were even "luckier" and got 3.6% for a brief period (6 months) in 2000.

I have to wonder if they are going to set the fixed rate to zero on May 1'st (or maybe even negative :-)))

Ah yes, good old hindsight. I got some at 3.0% in 2001, but some people were even "luckier" and got 3.6% for a brief period (6 months) in 2000.

I have to wonder if they are going to set the fixed rate to zero on May 1'st (or maybe even negative :-)))

At least we've all learned and now know when 1.2% is a good deal.