US Savings I-Bonds - Every 6 Months (May 1 & Nov 1)

[anitya]

My follow up Q to TD: Referring to the highlighted sentence in your reply [see text in italics in previous post], assuming I have owned the iBond for more than 5 years, am I correct that if I submit a redemption request any time on the first day of a month, I would still receive interest for that entire month? Is there a particular time of the day on the first day of a month when interest is accrued / savings bonds increase in value?

TD Reply: What interest you would be receiving would be for that month. When you redeem the security on the first day of the month in which the interest is due to accrue; which would be exactly the same interest if you redeem it on the 2nd day or the last day of that month. There is not time that is set on the 1st of the month that the interest would accrue.
_____________________________________________

I do not think they answered the first question definitively - may be they employ apprentice lawyers to write these replies!  However, I am deducing that one receives interest for the entire month of redemption.  If so, free gift.  If not, no big deal. 

If your idea is to redeem on the first day (rather than the second day) of a month, my suggestion is check the bond balance on the last day of the previous month and again on the first day of the month to make sure interest is posted (should be a different balance).   The other alternative is to use the paper bond calculator (assuming it continues to work when you need it) treasurydirect.gov/BC/SBCPrice  (copy/paste?).  I checked my account at noon EST today using the calculator and interest is posted into my account (security) balance on this first day of December.  However, note the Treasury's disclaimer re the calculator - "The Savings Bond Calculator WILL NOT: Give correct values for electronic bonds. The Calculator is for paper bonds only. For values of your electronic bonds, log in to your TreasuryDirect account."

[chahta]

How does one practically use the interest? Must a complete bond be cashed in or can a check or direct deposit be issued for interest only?

[Admin/YBB]

Nov 8, 2021 7:27:49 GMT -6 Admin/YBB said:

As for cashing them for income, buy smaller denominations (smallest $25, largest $1,000), so that appropriate amounts can be cashed; for example, there is no provision for partially cashing $1,000 Bond (that will go up in value beyond $1,000).

chahta, Savings Bond interest cannot be taken separately but is added to the Savings Bond. As mentioned earlier in this thread (see the quote above), a practical way is to buy them in small/medium denominations and then cash them as needed.

[Admin/YBB]

Finally, got my Treasury Direct Signature Guarantee hold removed and I bought I-Bonds. Took 4+ weeks from starting my Treasury Direct Application.

anitya , electronic bonds can be bought in any amount between $25-10,000 in penny increments*. Discrete amounts ($25, $100, $200, $500, $1,000) apply only to paper bonds, not to electronic bonds. The legacy Savings Bond Calculator assumes multiples of those discrete purchase amounts (entries require purchase denominations, number of bonds, months of purchase; there is box for entering bond number but that is optional and only for personal recordkeeping). If one bought other than those amounts of electronic savings bonds, one would just have to adjust/scale the values given by the legacy Savings Bond Calculator for discrete test values. Of course, login to Treasury Direct account will provide correct current values.

*My impression that discrete amounts for paper bonds would apply to electronic bonds too wasn't correct. It says so clearly in the online guide but I didn't pay attention until now.
treasurydirect.gov/savings-bonds/i-bonds/

"What do I bonds cost?

You pay the face value of the bond. For example, you pay $50 for a $50 bond. (The bond increases in value as it earns interest.)

Electronic I bonds come in any amount to the penny for $25 or more. For example, you could buy a $50.23 bond.

Paper bonds are sold in five denominations; $50, $100, $200, $500, $1,000."


The same applies to selling of electronic bonds,
treasurydirect.gov/savings-bonds/i-bonds/

"How much can I cash at one time?

Electronic bonds in TreasuryDirect

You can cash a minimum of $25 or any amount above that in 1-cent increments. If you cash only a portion of the bond's value, you must leave at least $25 in the TreasuryDirect account. Redemptions are comprised of principal and interest. (In a partial redemption, we pay interest only on the partial amount you cash.)

Paper bonds

No general limit exists for the total value you may cash in a single transaction. However, banks have varying policies on how much they will cash in one transaction (and some banks may have a policy to not cash savings bonds at all).
Note: Individual paper bonds may not be split and must be cashed in full."

chahta , so you can cash any amount in electronic Savings Bonds (unlike paper bonds) but the amount would include principal plus interest.

[Admin/YBB]

Now they say that the secret is out 😎 .

www.bloomberg.com/opinion/articles/2021-12-07/the-secret-is-out-on-7-12-inflation-protected-bonds

"In fact, the government-guaranteed, inflation-protected securities are now among the hottest assets around. The Treasury disclosed that it issued $1.312 billion of Series I bonds in November, according to data released late Monday. That’s by far the most on record since the department began breaking out monthly totals eight years ago. Considering that individuals are limited to buying $10,000 a year, 1 that suggests at least 131,200 people sought out the debt, on top of the hundreds of thousands of Americans who had already made their yearly purchase earlier in 2021. "

[Admin/YBB]

Treasury Direct website allows order entry in excess of the annual Savings Bonds limit - there are no warnings or flags. People have reported elsewhere that they entered orders for excess by mistake that were accepted but then they cancelled the pending orders.

So, I asked Treasury Direct about such excess orders and its response was that those orders for excess would be cancelled eventually and the money refunded into the linked account.

It would be simpler to program the website so that such orders for excess aren't accepted in the first place.

[Admin/YBB]

For a Treasury Direct order placed over the weekend, I expected that transaction will be done today, Monday, 1/3/22. But I was surprised that BOTH the purchase AND withdrawal from the linked bank account were posted as of 1/3/22 MORNING. I was thinking that purchase may be posted by the end of 1/3/22 and withdrawal done on 1/4/22 - NOT SO!

Remember to have money in the liked account ahead of entering Treasury Direct orders.

[Admin/YBB]

Following was posted at Fidelity Investor Community (a closed site, so no link possible) and Morningstar,
community.morningstar.com/s/question/0D53o00005l2K1hCAE/i-bonds-1112143022

I-Bond interest rate calculation for 2 examples, new purchase now and those purchased in 11/1999.

Let us look at the formula used by Treasury Direct.

Let b be the base/fixed rate (annual), f the semiannual inflation rate (so, annualized inflation is 2f), then use 6-month compounding and ignore squared-terms (so, the formula used by the Treasury is an approximation).
Composite rate = (1 + b/2 + f)^2 - 1 = 1 + 0.25 x b^2 + f^2 + b + 2f + b x f - 1
Ignoring squared terms,
Composite rate = b + 2f + bf (This is used by Treasury Direct).

Let us calculate the current rate for a new I-Bond purchased with 0% base rate (b = 0.00) and 11/1999 I-Bond purchased with 3.4% fixed rate (b = 0.034). Inflation now is 7.12% (2f = 0.0712) and semiannual inflation is 3.6% (f = 0.036).

Then,
the current rate for new I-Bond purchase is 0.00 + 0.0712 + 0 = 0.0712 or 7.12%,
and,
the current rate for I-Bond purchased in 11/1999 is 0.034 + 0.0712 + 0.034 x 0.036 = 0.106424 or 10.6424%; Treasury Direct shows 10.64%.

Note that for the I-Bond purchased in 11/1999, the inflation rate used now is the current inflation rate (7.12%), not that was in 11/1999 (1.76%).

treasurydirect.gov/savings-bonds/i-bonds/i-bonds-interest-rates/

[Admin/YBB]

I-Bond Rate Calculations

Rate calculations for I-Bonds are tricky. While rate changes are announced on May 1 and November 1, a complicating factor is that the applicable rates remain valid for full 6 months from the purchase dates. So, the actual rate change dates vary by the purchase months: I-Bonds purchased in May xxxx change rates on November 1 & May 1; those purchased in October xxxx change rates on April 1 & October 1, etc. For those interested, see this M* Discussions thread - details are too complicated to present and explain here.
community.morningstar.com/s/question/0D53o00005xf2YWCAY/ibonds-alert-check-your-paper-ibonds

Related Treasury Direct links,
treasurydirect.gov/savings-bonds/i-bonds/i-bonds-interest-rates/

[anitya]

I checked today for the interest added to my account for the ibond purchased in Nov 2021 (issue date Nov 1, 2021). I wanted to check if interest is being added for Nov and Dec on December 1. If that was the case, six months of interest should have been added on April 1, 2022 (Nov - April). To my surprise, the account showed the table below (i.e., interest accrued of $116), when I was expecting interest accrued of $356 (for six months) or at the least $296.67 (for five months). Can somebody pl clue me in?

Issue Date   Interest Rate   Status Amount    Current Value

11-01-2021    7.12%          $10,000.00          $10,116.00


Edit: edited to increase readability for others and myself when I revisit this thread in the future. 

[devotion2]

anitya, the posted interest is net of 3 month penalty. Also, not 6 months yet from November 2020.

[anitya]

Apr 5, 2022 13:21:31 GMT -6 devotion2 said:

anitya , the posted interest is net of 3 month penalty. Also, not 6 months yet from November 2020.

Thanks.  You are quick witted than I am!

Then, it looks like interest is posted to the account (increasing value of the account) only on the first day of the month following the month for which interest is earned.  Makes sense and resolves the question posed earlier in the thread and was posed to Treasury Direct as well which they avoided answering in their reply.

To sum up, to cover for the three month interest penalty for potential redemption in the first five years, interest is not posted to the account for the first three months after the issue date and account value increases only starting the fifth month when interest for the fourth month after the issue date is added to the account. 

[Admin/YBB]

Buying I-Bonds as Gifts

This is a 2-step process. The first step is to buy gift I-Bonds & “hold” in the gift-box area of your Treasury Direct (TD) account. You have to know recipient’s name & Social Security/Tax-ID number. The minimum hold time is 5 days but there is no maximum hold time. Gifts are irreversible – you cannot cash gift bonds yourself but can only deliver to the named recipients now or in the future. Your annual bond purchase limit doesn’t apply to gift bonds & you can buy any amounts (more or less than $10K) for any number of people (but annual bond limits will apply to recipients in the delivery year). Also keep in mind your annual gift exclusion limit to avoid filing the IRS Gift Tax Form 709.

The second step is to “deliver” the bond gift. You also have to know recipient’s TD account number; if the recipient doesn’t have a TD account, then he/she has to open one. Annual bond limit(s) will apply to the recipient(s) in the delivery transaction year, so make sure that in that year, the recipient(s) is (are) not buying bonds themselves or receiving gift bonds from someone else.

Gifts of I-Bonds among family members and friends provide a limited way to overcome the annual bond purchase limits.

Clear Practical Instructions thefinancebuff.com/buy-i-bonds-as-gift.html
Treasury Rules & Instructions
treasurydirect.gov/savings-bonds/gift-a-bond/
treasurydirect.gov/research-center/history-of-savings-bond/plan-gifts/
treasurydirect.gov/savings-bonds/gift-a-bond/gift-announcements/


Addendum: 
4/12/22. Entity accounts (Living Trusts, partnerships, corporate, etc) cannot buy gift I-Bonds. Entity accounts have many rules and  limitations, see
treasurydirect.gov/savings-bonds/businesses/
treasurydirect.gov/indiv/help/treasurydirect-help/user-guide/

4/24/22. A post from the closed Fidelity Investor Community (see) clarified that for the gift I-Bond DELIVERED, the amount used for the annual limit for the recipient is the initial purchase amount, not the delivered principal plus interest amount.

5/15/23. A poster at MFO reported that reclassification of purchase into Gift was possible to correct mistakes.
www.mutualfundobserver.com/discuss/categories/other-investing

[Admin/YBB]

New I-Bond Rates

I-Bond rates change on May 1 and November 1 (May-November-May pattern).

The inflation adjustment is based on the recent semiannual change in the CPI-U, unadjusted (released monthly). So, the recent CPI-U data used are March-September-March (released in April-October-April). The table below shows the recent history; the BLS Inflation Calculator can also be used.

CPI-U, Unadjusted fred.stlouisfed.org/graph/?g=O9Mn
I-Bond Rates Info treasurydirect.gov/savings-bonds/i-bonds/i-bonds-interest-rates/
BLS Inflation Calculator www.bls.gov/data/inflation_calculator.htm
BLS CPI-U, Current Release www.bls.gov/news.release/pdf/cpi.pdf

Month       CPI-U        6-Mo Change    Treasury Inflation Announcement

09/2019    256.759

03/2020    258.115    0.528%                      0.53%, 5/1/20

09/2020    260.280    0.839%                      0.84%, 11/1/20

03/2021    264.877    1.766%                      1.77%, 5/1/21

09/2021    274.310    3.561%                      3.56%, 11/1/21

03/2022    287.504    4.810%                      N/A, TBA 5/1/22

If the fixed rate remains at 0%, then the new I-Bond rate on 5/1/22 should be 9.62%. if the fixed rate is bumped up, then the new rate should be 9.62%+ (unlikely).

Limit for buying I-Bonds in Treasury Direct (TD) accounts is $10K/yr/TD-account. Although the limit is not enforced at the time of purchase, any excess will be refunded after some delay, so watch the limit yourself. To buy gift I-Bonds & “hold” in your account, you have to know recipient’s name & Social Security/Tax-ID number; to “deliver” bond gift, you have to know recipient’s Treasury Direct account number (see the previous post for more details). Special rules apply for paper I-Bonds purchased through the IRS tax refund.


Note: In the media,
www.wsj.com/articles/the-safe-investment-that-will-soon-yield-almost-10-11649769505
tipswatch.com/tracking-inflation-and-i-bonds/
www.marketwatch.com/story/the-silver-lining-of-surging-inflation-i-bond-yields-should-climb-above-9-11649784459
www.depositaccounts.com/blog/inflation-treasury-series-i-savings-bonds/

[Admin/YBB]

Linking a relevant I-Bond post in a MFO thread. www.mutualfundobserver.com/discuss/discussion/comment/148361/#Comment_148361

"@hank, I-Bond sales data are available as Excel download, www.treasurydirect.gov/govt/reports/pd/pd_tdsecuritiesissued.xlsm

Monthly I-Bond Sales

10/2021 $0.23 billion
11/2021 $1.07 billion (new rate 7.12%)
12/2021 $2.78 billion
01/2022 $3.26 billion
02/2022 $0.91 billion

As noted in the I-Bond thread, one can bunch up lot of buying as gift I-Bonds. So, let us say that you have 5 favorite relatives and friends (include me, if you want (-, then you can buy, say, $100K for EACH in gift I-Bonds to HOLD in your Treasury Direct account, and dole/DELIVER them out at $10K/yr/person over 10 years. That would be $510K total in I-Bond purchases NOW or ON 5/1/22, $500K in gift I-Bonds and "puny" $10K for yourself (-. Well, this a hypothetical for those who complain about not being able to buy enough but think of the estate and asset transfer angle. Of course, you cannot have the gifted bonds yourself for any reason (actions are irreversible).

What if the I-Bond rate collapses in a year or two? Well, then you still go through your estate plan but the receiver can sell them and buy something else.

Edit/Add: Treasury Direct also has linkable history of Savings Bond sales, 1935-2012. Sales peak (including all types of Savings Bonds) were in 1944 ($16.04 billion; WW II time), 1978 ($7.96 billion), 1986 ($11.91 billion), 1992 ($17.70 billion), 2001 ($11.58 billion), 2005 ($22.43 billion). I am sure there is a good story behind the ups and downs in the Savings Bond sales. www.treasurydirect.gov/indiv/research/history/history_sbsales.htm"

[Admin/YBB]

Taxation of Savings Bonds

There are extensive references (88 on my count!) to Savings Bonds in the IRS Publication 550. Gist is that the tax options are deferral method (used by most people) and annual method. Whichever method is used must be used for all Savings Bonds.

Changes are possible. Change from deferral method to annual method can be done anytime without the permission of the IRS; to start, pay all accumulated interest up to that point. But change from annual method to deferral method requires permission of the IRS and the request must be made following a specified format.

Regardless of the method used, the only 1099-INT will be issued will be on sale or redemption; so, you have to figure out tax from changing values of the Savings Bonds. Keep good records and inform your heirs or estate executor (if you name one) if you are using the annual method; otherwise, they may also pay tax when they get 1099-INT.

www.irs.gov/pub/irs-pdf/p550.pdf
More  treasurydirect.gov/savings-bonds/tax-information-ee-i-bonds/

[Admin/YBB]

A post from the closed Fidelity Investor Community clarifying that for the gift I-Bond DELIVERED, the amount used for the annual limit for the recipient is the initial purchase amount, not the delivered principal plus interest amount.

neli
Level 9
In response to neli
38m ago   (4/24/22)

@yogibearbull

About the delivery of the gifts: The amount you deliver includes all interest earned on that bond when you deliver it but only the purchase amount counts for the $10,000 per year limit. I sent an e-mail to treasury direct and they confirmed that this is correct.

[Admin/YBB]

I-Bond Rate, 5/1/22-10/31/22

Fixed rate 0.00%
Semiannual inflation rate 4.81%
Annualized I-Bond rate 9.62% for purchases between 5/1/22-10/31/22.

#PersonalFinance, #Savings, #Inflation
treasurydirect.gov/savings-bonds/i-bonds/i-bonds-interest-rates/

[Admin/YBB]

Welcome to the Club, JR, A New I-Bond Buyer

M* JR compares I-Bonds and 5-Yr TIPS with T-Bills/Notes and reaches favorable conclusions under the title, I-Bonds Forever? (Well, no, but still good).

He used 2 long-term scenarios: 1st, since 09/1998 (I-Bond inception) and 2nd, since 01/1995 (when 5-yr TIPS issuance resumed). 

For I-Bonds, he used 2 assumptions - the initial 3.4% fixed/base rate and 0% fixed/base rate (to entirely remove that effect). So, this 2nd scenario only captured the CPI effect and actual I-Bond buyers did better than that bottom line.

Unsurprisingly, his conclusions were that that the initial fixed/base rate was a give-away for then (1998) new I-Bonds and those did the best. But 0% I-Bonds also kept up with alternatives. He cautions about their limitations (annual limit, non-tradability) and to keep future expectations reasonable. But not to pass up a good deal, he has just now bought I-Bonds for both his wife and him. Welcome to the club JR!

As has been noted here, these conclusions are not surprising because I-Bonds, and 5-yr TIPS held to maturity, have kept up with $$CPI.

www.morningstar.com/articles/1108848/i-bonds-forever

[Admin/YBB]

#IBonds 11/1/22 Rate Est  Twitter LINK

09/2021 #CPI 274.201
09/2022 CPI est +8.1% yoy est, so 296.4253 est
03/2022 CPI 287.708
Mar-Sep est 1.0303, or 3.03%
New fixed rate 0-1.5%

New I-Bond Rate 6.06-7.61%

Update 10/13/22
#Treasury announcement 11/1/22
Current 9.62% for 6 mo until 10/31/22

Edit/Add: Above is for seasonally adjusted CPI.
Treasury uses unadjusted CPI.
The new rate est then is 6.278-7.825%
CPI Adjusted   CPI Unadjusted

Edit/Add 10/13/22: September CPI was +8.2% y-o-y
Updating calculations for unadjusted CPI,
New fixed rate (November 1) 0-1.5% est
New I-Bond Rate (November 1) 6.47-8.02% est