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Author: opentolearn Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35351  
Subject: Q. I BONDS Date: 9/26/2002 4:02 PM
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I know I bond's interest move in respect to inflation, but I am confused:

I bought some I bonds 7/15/01 at 5.9% and am wondering if that interest base remains the same as when I bought it, plus/minus current inflation. I hope my question makes sense. In other words is my return still 5.9%, or has it gone down because interest rates have gone done and inflation hasn't risen.

Thank you.
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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4670 of 35351
Subject: Re: Q. I BONDS Date: 9/26/2002 4:49 PM
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Your 07/2001 I-Bond has a current interest rate of 3.57%.

The interest rate on I-Bonds have a fixed rate component (for I-Bonds issued for 07/2001, 3%) and an inflation component as measured by the CPI-U (Consumer Price Index for all Urban consumers) (currently 0.28%). The CPI-U component is announced every May and November and the CPI-U component of the I-Bond rate will be adjusted to that rate on its six-month "anniversary" from month of issue.

See http://www.publicdebt.treas.gov/sav/sbirate2.htm for the gory details on how interest rates are calculated.

You can also plug your I-Bond particulars into a bond calculator at http://www.publicdebt.treas.gov/sav/savcalc.htm and it will show you the current redemption value and the current yield.

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4671 of 35351
Subject: Re: Q. I BONDS Date: 9/26/2002 4:50 PM
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I bought some I bonds 7/15/01 at 5.9% and am wondering if that interest base remains the same as when I bought it, plus/minus current inflation. I hope my question makes sense. In other words is my return still 5.9%, or has it gone down because interest rates have gone done and inflation hasn't risen.

http://www.savingsbonds.gov/sav/sbiinvst.htm has all the info you could ever want or need about I-bonds.

Basically...I-bonds have two components: (1) a fixed portion that you will receive for the life of the bond; and (2) an inflation portion that is based on the inflation rate over the past 6 months.

Your I-bonds have a fixed interest rate of 3.00%...the current inflation rate is 0.28%. To calculate your total current interest rate, you use the following formula:

Composite rate = [Fixed rate + 2 x Inflation rate + (Inflation rate X Fixed rate)] X 100%

In your case, this gives a current interest rate of 3.57%. Every 6 months, the inflation portion of your return changes -- your next change will occur in January and it will become whatever value is announced in November.

ACME

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Author: coolprash Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4672 of 35351
Subject: Re: Q. I BONDS Date: 9/26/2002 4:50 PM
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your return remains the same.

unless u sell the bond before end of life. then you maybe taking a loss or right now you could probably be making a profit on the capital invested/outlay.

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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4673 of 35351
Subject: Re: Q. I BONDS Date: 9/26/2002 4:51 PM
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In other words is my return still 5.9%, or has it gone down because interest rates have gone done and inflation hasn't risen.

To answer this specific question, the rate of your I-Bond has gone down because the inflation rate, as measured by the CPI-U, has gone down.


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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4674 of 35351
Subject: Re: Q. I BONDS Date: 9/26/2002 4:52 PM
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unless u sell the bond before end of life. then you maybe taking a loss or right now you could probably be making a profit on the capital invested/outlay.

Sorry, but this is NOT how Series I Savings Bonds operate!

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4675 of 35351
Subject: Re: Q. I BONDS Date: 9/26/2002 4:53 PM
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your return remains the same.

unless u sell the bond before end of life. then you maybe taking a loss or right now you could probably be making a profit on the capital invested/outlay.


I-bonds change interest rates every 6 months. They cannot be sold on an open market, but only back to the government (through a bank intermediary). There is no capital gain/loss as there is with many types of bonds. I-bonds are guaranteed to never decline in value regardless of the current inflation rate.

ACME

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4676 of 35351
Subject: Re: Q. I BONDS Date: 9/26/2002 4:55 PM
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Mark,

You and I seem to be doing a great job of answering at the same time. Of course, your answers are getting in a tad faster than mine...

Maybe we should try a tag-team approach now. :^)

ACME

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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4677 of 35351
Subject: Re: Q. I BONDS Date: 9/26/2002 4:58 PM
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Maybe we should try a tag-team approach now. :^)

Ok--I'll go visit some other boards and then mosey back later in the day. 8)

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Author: coolprash Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4678 of 35351
Subject: Re: Q. I BONDS Date: 9/26/2002 5:01 PM
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sorry my fault. thanks monseiur young for pointing out.

yours sincerely,
coolprash

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