How to Recover Lost US Savings Bonds

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Here’s a drawback to US savings bonds that you might not have considered: Savings Bonds are easy to forget about. Paper savings bonds are often left in safe deposit boxes and forgotten. Electronic savings bonds do not generate a paper trail either – no monthly statements, no annual tax forms, nothing. There is not even a reminder when they mature and stop earning interest. If something unexpected happens to the owner, it’s quite possible nobody else will realize the savings bonds are still there, perhaps still compounding away.

How many have been forgotten? The US Treasury is currently sitting on over $25 billion in matured, unclaimed U.S. savings bonds. This is according to the WSJ article States Battle Treasury Over Billions in Unclaimed Savings Bonds (paywall?).

Three Missouri sisters from a Russian immigrant family—Bessie, Anna and Mary Segal—socked away money into U.S. savings bonds for decades starting in the 1940s, investing $25 or $50 at a time.

They never married and by 1998, all three had died, with little money to their names. What the sisters didn’t realize was that those bonds, stored and forgotten in a Kansas bank, had turned into more than $670,000.

Most of that article is about how individual states are fighting with the federal government over who gets the manage the forgotten savings bonds. Both sides talk about fighting for us “little guys”, but the another incentive is that the winner also gets to keep whatever is left over as unclaimed property… again, billions of dollars.

Here’s how to recover lost savings bonds for you and or your relatives, including those gifted to you in the past. Do it as soon as possible, as there may soon be a countdown after which the state will eventually take the money for themselves as unclaimed property.

  • Click here and download Form FS Form 1048 (PDF direct link), “Claim for Lost, Stolen, or Destroyed United States Savings Bonds”. This used to be called Public Debt Form 1048.
  • You will need to fill it out to the best of your ability to help them in a manual search. Ideally you would have the serial numbers, but include all of the information that you can gather. Your name and Social Security Number, the giver’s name and SSN (parent? aunt/uncle? grandparent?), addresses, former addresses, middle initials, etc. If you don’t know something, just leave it blank.
  • Indicate whether you would like a replacement savings bond or direct deposit of the value into your bank account.
  • Obtain a medallion signature guarantee from a financial institution in order to verify your identity.
  • Mail it to the specific PO Box address listed at the bottom of the form. There is no fee.

Kathryn Davenport Bernard was surprised to learn in 2017 from a Kentucky law firm that she could collect on bonds found in the name of her uncle, Roger Lovelace, who died during World War II when she was a girl.

After several months of paperwork, Ms. Bernard and her twin sister each got a $1,300 check. “I just squirreled it away,” she said of the unexpected funds.

If you have existing savings bonds, be sure to create a backup list of all your bonds including purchase date, amount, owner info, and serial numbers. Here is the TreasuryDirect page on what happens upon the Death of a Savings Bond Owner, which applies to paper bonds only.

If you have electronic savings bonds in a TreasuryDirect account, be sure to keep a record of those as well. The TreasuryDirect website directs you to the Bureau of Fiscal Service directly if you know of someone with an online account that has died. They will put a hold on the account and give specific instructions for the situation.

Pre-emptive selling? While putting together my other estate documents, I realized that this complexity may not only be a hassle to my loved ones, but if they forget they may lose access to the money completely. Therefore, if I find myself in a year with relatively low income (and thus a lower tax bracket), I will probably sell off all my paper savings bonds and possibly my electronic ones as well. Savings bonds have been a useful tool in building up my investment portfolio, but they are not the best fit if you don’t keep detailed records and/or your family is not adept in navigating bureaucracy.

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Savings I Bonds November 2019: 2.02% Inflation Rate Prediction

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Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. You could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the November 2019 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to predict what an October 2019 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New inflation rate prediction. March 2019 CPI-U was 254.202. September 2019 CPI-U was 256.759, for a semi-annual increase of 1.01%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 2.02%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Tips on purchase and redemption. You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in October 2019. If you buy before the end of October, the fixed rate portion of I-Bonds will be 0.50%. You will be guaranteed a total interest rate of 1.90% for the next 6 months (0.50 + 1.40). For the 6 months after that, the total rate will be 0.50 + 2.02 = 2.52%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on October 31st, 2019 and sell on October 1, 2020, you’ll earn a ~1.72% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you held for three months longer, you’d be looking at a ~1.89% annualized return for a 14-month holding period (assuming my math is correct). Compare with the best interest rates as of October 2019.

Buying in November 2019. If you buy in November 2019, you will get 2.02% a newly-set fixed rate for the first 6 months. The new fixed rate is unknown, but is loosely linked to the real yield of short-term TIPS. In the past 6 months, the 5-year TIPS yield has dropped to about 0.20% and has been close to zero. My best guess is that it will be 0.10%. Every six months, your rate will adjust to your fixed rate (set at purchase) a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (minimum floor of 0%).

Buy now or wait? In the short-term, these I bond rates will probably not beat a top CD. If you intend to be a long-term holder, a factor to consider is that the October fixed rate is 0.5% and that it will likely drop at least a little in November in my opinion. You may want to lock in that higher fixed rate now.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and now consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

[Image: 1946 Savings Bond poster from US Treasury – source]

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Savings I Bonds May 2019 Interest Rate: 1.40% Inflation + 0.50% Fixed Rate

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Update 5/1/19. The fixed rate will be 0.50% for I bonds issued from May 1, 2019 through October 31st, 2019. This is the same as it was for the last 6 months. The variable inflation-indexed rate for this 6-month period will be 1.40% (as was predicted). The total rate on any specific bond is the sum of the fixed and variable rates, changing every 6 months. If you buy a new bond in between May 2019 and October 2019, you’ll get 1.90% for the first 6 months. See you again in mid-October for the next early prediction for November 2019.

Original post 4/11/19:

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. You could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the May 2019 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a April 2019 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New inflation rate prediction. September 2018 CPI-U was 252.439. March 2019 CPI-U was 254.202, for a semi-annual increase of 0.70%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 1.40%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Tips on purchase and redemption. You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in April 2019. If you buy before the end of April, the fixed rate portion of I-Bonds will be 0.50%. You will be guaranteed a total interest rate of 2.82% for the next 6 months (0.50 + 2.32). For the 6 months after that, the total rate will be 0.50 + 1.40 = 1.90%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on April 30th, 2019 and sell on April 1, 2020, you’ll earn a ~2.06% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. Comparing with the best interest rates as of April 2019, you can see that this is lower than a current saving rate or 12-month CD.

Buying in May 2019. If you buy in May 2019, you will get 1.40% a newly-set fixed rate for the first 6 months. The new fixed rate is unknown, but is loosely linked to the real yield of short-term TIPS. In the past 6 months, the 5-year TIPS yield has dropped from 1% to about 0.5%. My best guess is that it will be 0.20%. Every six months, your rate will adjust to your fixed rate (set at purchase) a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (minimum floor of 0%).

Buy now or wait? In the short-term, these I bond rates will definitely not beat a top 12-month CD rate if bought in April, and most likely won’t if bought in May either unless inflation skyrockets. Thus, if you just want to beat the current bank rates, I Bonds are not a good short-term buy right now.

If you intend to be a long-term holder, then another factor to consider is that the April fixed rate is 0.5% and that it will likely drop at least a little in May in my opinion. You may want to lock in that higher fixed rate now.

Honestly, I am not too excited to buy either in April or May, but if I really liked the long-term advantages of savings bonds (see below), I would consider buying now in April rather than May due to my guess of a higher fixed rate. You could also wait, as things might change again during the next update in mid-October. For my own accounts, as I am now semi-retired and thus no longer a big saver looking for any tax-deferred space possible, I will probably just buy TIPS in other accounts instead since the real yield is similar.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and now consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

[Image: 1946 Savings Bond poster from US Treasury – source]

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Savings I Bonds November 2018 Interest Rate: 2.32% Inflation Rate, 0.50% Fixed Rate

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Update 11/1/18. The fixed rate will be 0.50% for I bonds issued from November 1, 2018 through April 30, 2019. The variable inflation-indexed rate for this 6-month period will be 2.32% (as was predicted). The total rate on any specific bond is the sum of the fixed and variable rates, changing every 6 months. If you buy a new bond in November 2018, you’ll get 2.82% for the first 6 months. See you again in mid-April 2019 for the next early prediction.

Original post 10/14/18:

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. You could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the November 2018 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a October 2018 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New inflation rate prediction. March 2018 CPI-U was 249.554. September 2018 CPI-U was 252.439, for a semi-annual increase of 1.16%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 2.32%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Tips on purchase and redemption. You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in October 2018. If you buy before the end of October, the fixed rate portion of I-Bonds will be 0.30%. You will be guaranteed a total interest rate of 2.52% for the next 6 months (0.30 + 2.22). For the 6 months after that, the total rate will be 0.30 + 2.32 = 2.62%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on October 31st, 2018 and sell on October 1, 2019, you’ll earn a ~2.09% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you held for three months longer, you’d be looking at a ~2.20% annualized return for a 14-month holding period (assuming my math is correct). Compare with the best interest rates as of October 2018.

Buying in November 2018. If you buy in November 2018, you will get 2.32% a newly-set fixed rate for the first 6 months. The new fixed rate is unknown, but is loosely linked to the real yield of short-term TIPS, which has been rising a bit. The current real yield of 5-year TIPS now about ~1.00%. My best guess is that it will be 0.50% or 0.60%. Every six months, your rate will adjust to your fixed rate (set at purchase) a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (minimum floor of 0%).

Buy now or wait? In the short-term, these I bond rates will not beat a top 12-month CD rate if bought in October, and probably won’t if bought in November unless inflation skyrockets. Thus, I probably wouldn’t buy in October. I haven’t bought any savings bonds yet this year, and will wait until November to see what the new fixed rate will be. If it greatly lags the real yield on short-term TIPS, then I will probably just buy TIPS instead. However, if it is close, I will probably buy some savings bonds as a long-term investment given the unique benefits below.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and now consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

[Image: 1946 Savings Bond poster from US Treasury – source]

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TIPS ETF vs. TIPS Mutual Fund vs. Series I Savings Bond: 10-Year Performance Comparison (2008-2018)

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While updating my portfolio spreadsheet, I noticed that it had been 10 years since I bought my first electronic savings bond. I recently listed Reasons To Own TIPS, Treasury Inflation-Protected Securities and Reasons To Own Series I Savings Bonds. This got me wondering – How did my 10-year savings bond performance compare to buying a TIPS ETF or a TIPS mutual fund?

A $10,000 Series I Savings Bond issued 3/1/2008 is now worth $13,964 as of 9/1/2018, a 3.4% annualized return. The interest automatically accrues and compounds, assuming no withdrawals were made. This is taken straight from my TreasuryDirect.gov account.

The largest TIPS ETF is the iShares TIPS Bond ETF (TIP). According to ETFReplay, below is the total return (green) of $100 invested from March 2008 to September 2018. Total return includes the effect of the immediate reinvestment of any dividends and distributions. TIP is a basket of individual TIPS, with an average effective maturity of about 8 years. $10,000 invested in TIP on 3/3/2008 would have turned into $13,230 on 9/4/18, a 2.8% annualized return.) (Actual dates used are the closest trading days.)

The largest TIPS mutual fund is the Vanguard Inflation-Protected Securities Fund (VIPSX). According to Morninstar, here is the total growth of $10,000 invested from March 2008 to September 2018. VIPSX is a basket of individual TIPS, with an average effective maturity of about 8 years. $10,000 invested in VIPSX on 3/1/2008 would have turned into $13,100 on 9/1/18, a 2.7% annualized return.

I could have also bought an individual TIPS bond back in March 2008 that matured in 2018, but I’m not sure about how to compute the total return with reinvested dividends (which kept varying with CPI) all the way up to today. If someone wants to run the numbers, I’d be happy to add them to this post.

Bottom line. Over roughly the last 10 years, the total returns from owning savings I Bonds vs. popular TIPS ETF vs. popular TIPS mutual fund varied between 2.7% vs. 3.4% annualized. The savings bond probably beat the ETFs and mutual funds slightly this time because it held a fixed rate of 1.2% while the other bond funds have an ongoing ladder of TIPS with lower average real rates. Over the next 10 years, with the current low fixed rates on savings bonds, the ETF and mutual fund might win slightly instead. This is why you would compare the current fixed rate on savings bonds vs. the current real yields on TIPS when considering a purchase between them. I would also factor in the tax deferral feature of savings bonds.

The bigger question is whether you want to own inflation-linked bonds at all. (See links at the top of post for help on that.)

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Reasons To Own Series I Savings Bonds

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sb_posterSeries I Savings Bonds (aka “I Bonds”) are a unique investment sold directly to individuals by the US Treasury that pay out a variable interest rate linked to inflation. This post collects general reasons to own these savings bonds without going into the internal details of how they work. Please also see my related post Reasons To Own TIPS, Treasury Inflation-Protected Securities.

Backed by the US government and will never decrease in nominal value. If you buy an I Bond for $1,000, you’ll never get less than $1,000 back. Sometimes it’s nice to know that something will only go up in numerical value.

Pays interest that is the sum of a fixed rate and an inflation-linked rate. The fixed rate is set at purchase. The inflation-linked rate is reset every 6 months based on a preset formula tracking the CPI-U (Consumer Price Index for All Urban Consumers). This is unique and would come in helpful in times of unexpectedly higher inflation. I write about the upcoming I bond rate changes every 6 months as well.

Sold directly by US Treasury with no fees. You must either buy them directly online at TreasuryDirect.gov or via paper bonds via tax return. There are no purchase fees or annual maintenance fees.

Interest from I-Bonds are exempt from state and/or local income taxes. Same as with US Treasury bonds and TIPS.

Federal income tax on interest is not due until redemption. This means that you can defer paying taxes on accrued interest for up to 30 years. You don’t owe taxes until you cash out. This also means that you can time your eventual withdrawal during a year where you have the lowest tax rate (i.e. when your income drops after retirement).

Possible tax-free interest when used for qualified educational expenses. If you meet all the requirements, you can even avoid federal income taxes completely when paying qualified higher education expenses at an eligible institution. These include income phase-out limits.More information at this TreasuryDirect page. You can even contribute your proceeds to a 529 plan or Coverdell Educational Savings Account. Here are some tips from Finaid.org.

Series EE and I US Savings Bonds issued after December 31, 1989 may be redeemed tax-free in order to contribute the proceeds to a section 529 plan or Coverdell Education Savings Account. (To take advantage of this, file IRS Form 8815 to claim an exclusion for the interest after rolling the proceeds of these US Savings Bonds into a section 529 college savings plan or Coverdell Education Savings account. Write “529 College Savings Plan” or “Coverdell Education Savings Account” in the answer to 1(b), where it asks for the name of the educational institution. The specific citation in the tax code for this guidance is IRC Section 135(c)((2)(C).)

Reasons for NOT owning I Bonds.

  • There are purchase limits for I Bonds of $10,000 per person per year in electronic format. You can also buy an additional $5,000 in paper bonds per year using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.
  • The fixed rate has been low in recent years. Here, the inflation-linking may help you get an interest rate slightly above inflation, but after taxes, your net return may still lag inflation. For example if the fixed rate was zero and inflation was 2%, you would probably get less than a 2% return after taxes.
  • As with interest earned from bank accounts and taxable bonds, interest is eventually taxed at ordinary income rates. Long-term capital gains and dividends from stocks are usually taxed at lower rate.
  • You can’t redeem your savings bonds at all during the first 12 months. I believe there is a small exception if you can show yourself to be affected by an official natural disaster.
  • If you redeem within the first 5 years, you will be subject to an early redemption penalty of your last 3 months of interest.
  • TIPS are analyzed more deeply by financial professionals, and have not been found to lie on the “efficient frontier” curve. Thus, it is also unlikely that I bonds will optimal in that way.
  • You may not want to open and track a separate Treasury Direct account just to hold your I Bonds.
  • If you lose your online login and password to TreasuryDirect.gov and someone jumps through all the hoops necessary to steal your electronic I bonds, then the US Treasury will not reimburse you. If you lose paper bonds, there is a replacement policy.

TIPS vs. I Bonds.
Both have interest that both linked to inflation and is exempt from state/local taxes. You should compare the fixed rate from I Bonds with the current real rate in the TIPS market. Things that might make I Bonds more attractive than TIPS include the tax-deferral ability and the ability to avoid taxes when spent on qualified educational expenses. Things that might makes TIPS more attractive are the intra-day liquidity at all times and the ability to buy unlimited amounts via your choice of broker.

I own both TIPS and I Bonds in my personal portfolio. Inflation-protected bonds are part of my chosen asset allocation, and I prefer to use a lot of my tax-deferred account space for REITs. Series I Bonds allow me to own inflation-linked bonds in effectively a tax-deferred manner. I may also be able to use the interest tax-free for educational expenses as I have three young kids with 12-16 years to go before college.

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Savings I Bonds May 2018 Interest Rate: 2.22% Inflation Rate, 0.30% Fixed Rate

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Update 5/1/18. The fixed rate will be 0.30% for I bonds issued from May 1, 2018 through October 31, 2018. The variable inflation-indexed rate for this 6-month period will be 2.22% (as was predicted). The total rate on any specific bond is the sum of the fixed and variable rates, changing every 6 months. If you buy a new bond in May 2018, you’ll get 2.52% for the first 6 months. Not bad. See you again in mid-October 2018 for the next early prediction.

Original post 4/11/18:

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. You could own them as a replacement for cash reserves (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the May 2018 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a April 2018 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New inflation rate prediction. September 2017 CPI-U was 246.819. March 2018 was 249.554, for a semi-annual increase of 1.11%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 2.22%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Tips on purchase and redemption. You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in April 2018. If you buy before the end of April, the fixed rate portion of I-Bonds will be 0.1%. You will be guaranteed a total interest rate of 2.58% for the next 6 months (0.10 + 2.48). For the 6 months after that, the total rate will be 0.10 + 2.22 = 2.32%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on April 30th, 2018 and sell on April 1, 2019, you’ll earn a ~2.04% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you held for three months longer, you’d be looking at a ~2.10% annualized return for a 14-month holding period (assuming my math is correct). Compare with the best interest rates as of April 2018.

Buying in May 2018. If you buy in May 2018, you will get 2.22% a newly-set fixed rate for the first 6 months. The new fixed rate is unknown, but is loosely linked to the real yield of short-term TIPS, which has been rising a bit. The current real yield of 5-year TIPS is ~0.56%. My best guess is that it will be 0.20% or 0.30%. Every six months, your rate will adjust to your fixed rate (set at purchase) a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (minimum floor of 0%).

So, which one? Buying in April 2018 would lock in a 11-14 month return equal to the top 12-month CD rates, which isn’t bad ( the interest is exempt from state and local income taxes). If inflation picks up in the next year, you could still keep the bond and have potential upside. I would choose this option if I was treating savings bonds as short-term CD alternatives. However, if you buy in May 2018, your (real) fixed rate may be higher. This helps in the long run if you intend to keep these savings bonds indefinitely. I am a long-term holder (see below), so I am waiting until May.

Unique features. Due to their annual purchase limits, you should still consider their unique advantages before redeeming them. These include ongoing tax deferral (you don’t owe tax until redemption), exemption from state income taxes, and being a hedge against inflation (and even a bit of a hedge against deflation). There are also potential benefits when using the proceeds for college.

Over the years, I have accumulated a nice pile of I-Bonds and now consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

[Image: 1946 Savings Bond poster from US Treasury – source]

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Savings I Bonds November 2017 Update: 0.1% Fixed, 2.48% Variable Interest Rate

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Update 11/1/17. The fixed rate will be 0.1% for I bonds issued from November 1, 2017 through April 30, 2018. The variable inflation-indexed rate for this 6-month period will be 2.48% (as was predicted 😉 ). The total rate on any specific bond is the sum of the fixed and variable rates. See you again in mid-April 2018 for the next early prediction.

Original post 10/15/17:

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. You could own them as a replacement for cash reserves (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the November 2017 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a October 2017 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New Inflation Rate Component
March 2017 CPI-U was 243.801. September 2017 CPI-U was 246.819, for a semi-annual increase of 1.24%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 2.48%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Purchase and Redemption Timing Reminders
You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in October 2017
If you buy before the end of October, the fixed rate portion of I-Bonds will be 0.0%. You will be guaranteed the current variable interest rate of 1.96% for the next 6 months, for a total 0.00 + 1.96 = 1.96%. For the 6 months after that, the total rate will be 0.00 + 2.48 = 2.48%.

Let’s say we hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on October 31st, 2017 and sell on October 1, 2018, you’ll earn a ~1.76% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you held for three months longer, you’d be looking at a ~1.91% annualized return for a 14-month holding period (assuming my math is correct). Compare with the current best bank interest rates.

Buying in November 2017
If you buy in November, you will get 2.48% an unknown fixed rate for the first 6 months. The fixed rate is likely to be zero or 0.1%. (Current real yield of 5-year TIPS is ~0.20%.) Every six months, your rate will adjust to the fixed rate a variable rate based on inflation. If inflation picks up, you’ll get a hiked rate earlier than versus buying in October.

If haven’t bought your limit for 2017 yet, I don’t feel strongly one way or the other. If you like the idea of locking in a rate of return for the next 12 months that is a bit better than current CD rates, buy in October. If you think inflation will go up soon, buy in November. Your November fixed rate might be also be bumped up a tiny bit to 0.1%.

Existing I-Bonds and Unique Features
If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate + variable rate (minimum floor of 0%). Due to their annual purchase limits, you should still consider their unique advantages before redeeming them. These include ongoing tax deferral, exemption from state income taxes, and being a hedge against inflation (and even a bit of a hedge against deflation).

Over the years, I have accumulated a portfolio of I-Bonds with fixed rates varying from 0% to over 1%, and I consider it part of my inflation-linked bond allocation inside my long-term investment portfolio.

Annual Purchase Limits
The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund (see IRS Form 8888). If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

[Image: 1946 Savings Bond poster from US Treasury – source]

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Savings I Bonds May 2017 Update: 1.96% Inflation Rate

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savbonds4Savings I Bonds are a low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. You could own them as a replacement for cash reserves (they are liquid after 12 months) or bonds in your portfolio. New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of May 2017 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows us the opportunity to know exactly what a April 2017 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New Inflation Rate
September 2016 CPI-U was 241.428. March 2017 CPI-U was 243.801, for a semi-annual increase of 0.98%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be approximately 1.96%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Purchase and Redemption Timing Reminder
You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time though, since if you wait too long your effective purchase date may be bumped into the next month.

Buying in April 2017
If you buy before the end of April, the fixed rate portion of I-Bonds will be 0.0%. You will be guaranteed the current variable interest rate of 2.76% for the next 6 months, for a total 0.00 + 2.76 = 2.76%. For the 6 months after that, the total rate will be 0.00 + 1.96 = 1.96%.

Let’s say we hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on April 30th, 2017 and sell on April 1, 2018, you’ll earn a ~2.04% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you held for three months longer, you’d be looking at a ~2.02% annualized return for a 14-month holding period. Compare with the current highest 1-year bank CD rates of roughly 1.5% and online savings accounts rates of roughly 1%.

Buying in May 2017
If you wait until May, you will get 1.98% an unknown fixed rate for the first 6 months. The fixed rate is likely to be either zero or 0.1%. Every six months, your rate will adjust to the fixed rate a variable rate based on inflation. If inflation picks up, you’ll get a hiked rate earlier than versus buying in April.

The primary reason to wait until May is that the current fixed rate is zero and it has a small chance of going up in May. I would personally rather lock in the solid 12-month return by buying in April rather than chase a possible 0.1% long-term bump. I plan on buying my annual limit this week, and I intend to hold these indefinitely for the reasons listed below.

Existing I-Bonds and Unique Features
If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate + variable rate (minimum floor of 0%). Due to their annual purchase limits, you should still consider their unique advantages before redeeming them. These include ongoing tax deferral, exemption from state income taxes, and being a hedge against inflation (and even a bit of a hedge against deflation).

Annual Purchase Limits
The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund (see IRS Form 8888). If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

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Savings I Bonds November 2016 Update: 2.76% Inflation Rate

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Update for I bonds issued from November 1, 2016, through April 30, 2017. The new fixed rate as of November 1st, 2016 is 0.0%, which was a decrease from 0.1% during the last 6-month period. For comparison, 5-year TIPS real yield on 11/1/16 was actually negative at -0.29%. The variable inflation-indexed rate is 2.76% (as was predicted). Your total rate is the sum of your fixed rate and the variable rate. See you again in mid-April 2017 for the next early prediction.

Original post 10/18/16:

Savings I Bonds are a low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. You could own them as a short-term investment in place of bank CDs or savings accounts, or you could hold them as long-term investments in place of government, corporate, or municipal bonds.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of November 2016 savings bond rates a couple of weeks before the official announcement on May 1st. This also allows us the opportunity to know exactly what a October 2016 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New Inflation Rate
March 2016 CPI-U was 238.132. September 2016 CPI-U was 241.428, for a semi-annual increase of 1.38%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be approximately 2.76%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Purchase and Redemption Timing Reminder
You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time though, since if you wait too long your effective purchase date may be bumped into the next month.

Buying in October 2016
If you buy before the end of October, the fixed rate portion of I-Bonds will be 0.1%. You will be guaranteed the current variable interest rate of 0.16% for the next 6 months, for a total 0.10 + 0.16 = 0.26%. For the 6 months after that, the total rate will be 0.10 + 2.76 = 2.86%. 0.26% for 6 months, then 2.86% for 6 months.

Let’s say we hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on October 31st, 2016 and sell on October 1, 2017, you’ll earn a ~0.92% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you held for three month longer, you’d be looking at a ~1.34% annualized return for a 14-month holding period. Compare with the current highest 1-year bank CD rates of roughly 1.25% and online savings accounts rates of roughly 1%.

Buying in November 2016
If you wait until November, you will get 2.76% an unknown fixed rate for the first 6 months. The fixed rate is likely to be either zero or 0.1%. (Update: The fixed rate is 0.0%, making the total rate 2.76% for the first 6 months.) Every six months, your rate will adjust to the fixed rate a variable rate based on inflation. If inflation picks up, you’ll get a hiked rate earlier than versus buying in October.

If you buy on November 30th, 2016 and sell on November 1st, 2017, you’ll earn a minimum ~1.51% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. As long as inflation isn’t zero or negative over the next 6 months, you’ll earn even more. Your rate is guaranteed to beat out any current 1-year CD rate, and you still have upside potential.

Which is better? If you really want to lock in that 0.1% fixed rate for the long-term, you could buy in October. I think you have more short-term upside if you buy in November, even if your fixed rate might drop to zero. I already bought my 2016 annual limit back in April, and I intend to hold these indefinitely for the reasons listed below.

Existing I-Bonds and Unique Features
If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate + variable rate (minimum floor of 0%). Due to their annual purchase limits, you should still consider their unique advantages before redeeming them. These include ongoing tax deferral, exemption from state income taxes, and being a hedge against inflation (and even a bit of a hedge against deflation).

Annual Purchase Limits
The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund (see IRS Form 8888). If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

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Savings I Bonds May 2016 Interest Rate Update

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savbonds4

New fixed rate as of May 1st, 2016 is 0.1%, the same as the last 6-month period. The variable inflation-indexed rate is 0.16% (as was predicted). Thus, buying a new I Bond between May 2016 through October 2016 will earn a composite rate of 0.26% for the first six months, and after that 0.1% the current inflation-indexed rate updated every 6 months.

Original mid-April post below:

New inflation numbers were just announced, which allows us to make an early prediction of May 2016 savings bond rates a couple of weeks before the official announcement on May 1st. This also allows us the opportunity to know exactly what a April 2016 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New Inflation Rate
September 2015 CPI-U was 237.945. March 2016 CPI-U was 238.132, for a semi-annual increase of 0.0786%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be approximately 0.16%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Purchase and Redemption Timing Reminder
You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time though, since if you wait too long your effective purchase date may be bumped into the next month.

Buying in April
If you buy before the end of April, the fixed rate portion of I-Bonds is guaranteed to be 0.1%. You will also be guaranteed the current variable interest rate of 1.54% for the next 6 months, for a total rate of 0.1 + 1.54 = 1.64%. For the 6 months after that, the total rate will be 0.1 + 0.16 = 0.26%. 1.64% for 6 months, then 0.26% for 6 months.

Let’s say we hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on April 30th, 2016 and sell on April 1, 2017, you’ll earn a ~0.97% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. This average rate is somewhat lower than what is currently available from the highest 1-year bank CD rates (ex. 1.25% APY at Synchrony Bank as of 4/15/16), but matches the APY of most online savings accounts.

Buying in May
If you wait until May, right now I can only estimate a fixed rate of between 0% and 0.2% the variable rate of 0.16% for a composite rate of 0.16 to 0.36% for the first 6 months. The next 6 months will be the sum of an unknown fixed rate an unknown rate based on future inflation. Given this low rate for the first 6 months, I would rather buy in April than May, otherwise I would wait and check back in during mid-October 2016 to see if inflation has picked up.

Existing I-Bonds and Unique Features
If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate + variable rate (minimum floor of 0%). Again, this new rate update is low, but due to their annual purchase limits, you should still consider their unique advantages before redeeming them. These include ongoing tax deferral, exemption from state income taxes, and being a hedge against inflation (and even a bit of a hedge against deflation).

Annual Purchase Limits
The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund (see IRS Form 8888). If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

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Savings I Bonds November 2015 Interest Rate

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savbonds4

New fixed rate for November 2015 is 0.1%. The most recent official announcement states that effective November 2015, the new fixed rate on Series I savings bonds is 0.1%, up from the previous 0.0%. The variable inflation-indexed rate is 1.54% (as was predicted). Thus, buying a new I Bond between November 2015 through April 2016 will earn a composite rate of 1.64% for the first six months, and after that 0.1% the current inflation-indexed rate updated every 6 months.

If you theoretically bought on November 30th, 2015 and sell on November 1st, 2016, at the very minimum you’d earn a ~.89% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. As long as inflation isn’t zero or negative over the next 6 months, you’ll earn more. Not a bad minimum short-term return for what could be a good long-term investment. I’m buying some after mid-November (don’t want to cut it too close to the deadline).

Existing I Bonds will earn their fixed rate the semi-annual inflation rate (adjusts every 6 months based on the original purchase date, eventually will be 1.54%).

Original mid-October post below:

New inflation numbers were announced, which allows us to make an early prediction of November 2015 savings bond rates before their official semi-annual announcement on the 1st of the month. This also allows us the opportunity to know exactly what a October 2015 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New Inflation Rate
March 2015 CPI-U was 236.119. September 2015 CPI-U was 237.945, for a semi-annual increase of 0.77%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be approximately 1.54%. The new fixed rate won’t be announced until November 1st, but unless something very extraordinary happens, this is going to be a very accurate prediction. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be different.

Purchase and Redemption Timing Reminder
You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time though, since if you wait too long your effective purchase date may be bumped into the next month.

Buying in October
If you buy before the end of October, the fixed rate portion of I-Bonds will be 0%. You will be guaranteed the current variable interest rate of -1.60 for the next 6 months, for a total rate of zero (it can’t be negative). For the 6 months after that, the total rate will be 1.54%. Add in the last-3-months-of-interest penalty for holding less than 5 years, and I just wouldn’t buy in October.

Buying in November
If you wait until November, you will get 1.54% an unknown fixed rate for the first 6 months. The fixed rate is likely to be zero. There may be a small chance it is 0.1%, and an even smaller chance it will be 0.2%. Every six months, your rate will adjust to the fixed rate a variable rate based on inflation. At least here if inflation picks up, you’ll get a hiked rate earlier than versus buying in October.

If you buy on November 30th, 2015 and sell on November 1st, 2016, at the very minimum you’ll earn a ~.84% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. As long as inflation isn’t zero or negative over the next 6 months, you’ll earn more. That still isn’t a slam dunk short-term play, but if you want to buy it anyways for a long-term investment, it’s not bad. Keep your money in an online savings account earning 1% or more until then.

Existing I-Bonds
If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate + variable rate (minimum floor of 0%). Again, this new rate update isn’t terribly high, but due to their annual purchase limits, you should still consider their unique advantages before redeeming them. These include ongoing tax deferral, exemption from state income taxes, and being a hedge against inflation (and even a bit of a hedge against deflation).

Annual Purchase Limits
The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund (see IRS Form 8888). If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

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eccad.info has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. Eccad.info is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.