I-Bond fixed rate rises to 1.3%, highest in more than 16 years

[ochotona]

https://tipswatch.com/2023/10/31/i-bond ... -16-years/

[vnatale]

https://tipswatch.com/2023/10/31/i-bond ... -16-years/

Also saw that article earlier this morning from that tremendous Treasuries web site.

[barrett]

Thanks for posting that, ocho. I may get my wife to buy some in January. We both did the gift box for 2023 and I don't want to do that again (just a personal preference).

I think David Enna's articles are good but I have an issue with this statement:

<< In my most recent projection I estimated that the I Bond’s fixed rate would be set in a range of 1.1% to 1.4%, so a fixed rate of 1.3% fits into expectations. It is not spectacular, especially when a comparable investment — the 5-year Treasury Inflation Protected Security — has a real yield of 2.40%, an advantage of 110 basis points. >>

The reason I have an issue with it is that they're not really comparable investments. I-Bonds can only be held in taxable and TIPS are best held in Roth or tIRA accounts. No need to compare the two, at least in my mind. Anyway, I like both.

[ochotona]

I'm going to wait until mid- or late-April to make a decision.

[foglifter]

The reason I have an issue with it is that they're not really comparable investments. I-Bonds can only be held in taxable and TIPS are best held in Roth or tIRA accounts. No need to compare the two, at least in my mind. Anyway, I like both.

I think if you elect to postpone tax on interest until redemption your I Bonds can be considered tIRA-like, so comparing I Bonds to tIRA is not out of question.

[foglifter]

I'm going to wait until mid- or late-April to make a decision.

That's a good idea, I'll do the same. Who knows if the fixed rate will go even higher on May 1st.

[vnatale]

I'm going to wait until mid- or late-April to make a decision.

That's a good idea, I'll do the same. Who knows if the fixed rate will go even higher on May 1st.

Waiting until next year then passes your $10,000 available to purchase for 2023? Why not do both?

[foglifter]

I'm going to wait until mid- or late-April to make a decision.

That's a good idea, I'll do the same. Who knows if the fixed rate will go even higher on May 1st.

Waiting until next year then passes your $10,000 available to purchase for 2023? Why not do both?

I already bought my 2023 quota in April... if only I knew!

[ochotona]

I already bought my 2023 quota in April... if only I knew!

Sadly, I spent my $10,000 already for 2023. I think April - May is time to buy... the Fed dot plots, if you believe them, show an easing into late 2024. But... we're probably going to be humiliated nonetheless.

[vnatale]

I already bought my 2023 quota in April... if only I knew!

Sadly, I spent my $10,000 already for 2023. I think April - May is time to buy... the Fed dot plots, if you believe them, show an easing into late 2024. But... we're probably going to be humiliated nonetheless.

I am almost certain that my ever-present procrastination has left me still with $10,000 to use for iBond purchases for 2023.

[foglifter]

I'm thinking about selling my older bonds with 0% fixed rate and buy the new ones next year. I don't see much sense in keeping them as they will have that fixed rate of 0% until maturity.

[vnatale]

I'm thinking about selling my older bonds with 0% fixed rate and buy the new ones next year. I don't see much sense in keeping them as they will have that fixed rate of 0% until maturity.

But don't they still grow at whatever inflation turns out to be?

[Xan]

I'm thinking about selling my older bonds with 0% fixed rate and buy the new ones next year. I don't see much sense in keeping them as they will have that fixed rate of 0% until maturity.

But don't they still grow at whatever inflation turns out to be?

If you're not going to use the $10K purchase limit this year, then there's an advantage to trading in your I-bonds that have a 0% fixed interest rate for the ones that have a 1.3% fixed interest rate. If inflation goes to zero in the future, your old bonds (or new ones purchased at the time) will return 0%, but the ones you can buy today would return 1.3%.

[vnatale]

I'm thinking about selling my older bonds with 0% fixed rate and buy the new ones next year. I don't see much sense in keeping them as they will have that fixed rate of 0% until maturity.

But don't they still grow at whatever inflation turns out to be?

If you're not going to use the $10K purchase limit this year, then there's an advantage to trading in your I-bonds that have a 0% fixed interest rate for the ones that have a 1.3% fixed interest rate. If inflation goes to zero in the future, your old bonds (or new ones purchased at the time) will return 0%, but the ones you can buy today would return 1.3%.

But no advantage if you are committed to buying the maximum iBonds available to you each year? They are a great investment except that they are about the only investment around in which there are limitations as to how much you can invest on an annual basis.

Note: Limitations on investments in retirement accounts are NOT at all the same.

[sophie]

1.3% fixed? Nice! Should be higher though....I thought it was supposed to be tied to the 5 year treasury yield, which is 5%-ish.

I'll be buying my annual $10K aliquot in January. (and yes...I basically regard the savings bonds as a non-deductible IRA equivalent, holding only cash. Neat.)

The fun decision will come when I file federal taxes and order my paper bonds. If the fixed rate is likely to go up further next May, it may be worth filing taxes right before the deadline, so that the I bond purchase is processed after May 1. Anyone know whether filing taxes on April 15 will guarantee that the I bond purchase happens in May? Or would you have to request an extension in order to ensure that?

It was pretty quick the last time I did it - I filed my taxes in mid February and the I bond purchase processed before the end of the month. But, that might be because very few people, I would guess, file that early. I like to do that to head off identity thieves trying to file in my name...."he who files first, files best" kind of concept. So I'd be a bit nervous delaying to the bitter end, but...may be worth it if there's another big jump in the fixed rate.

[ochotona]

Why not wait until Dave Enna's mid-April opinion about I-Bond rates? They might go up.

[sophie]

Yeah, good idea....if the fixed rate is going up in April it would be worth waiting.

[foglifter]

What is the earliest date when the fixed rate forecast becomes more or less accurate? Will it be a couple weeks before May 1st? I want to set up a reminder for myself so I don't miss the narrow window to buy at the current rate if the announced May rate will be lower.

[barrett]

What is the earliest date when the fixed rate forecast becomes more or less accurate? Will it be a couple weeks before May 1st? I want to set up a reminder for myself so I don't miss the narrow window to buy at the current rate if the announced May rate will be lower.

Alas, the fixed rate is usually announced on or just after May 1st and November 1st. The last couple of announcements have been a day or so early. So, because one cannot buy instantaneously with Treasury Direct, there is no window of opportunity... which is why ochotona suggested checking out David Enna's "prediction" (he always gives a a narrow range of probabilities, actually) that he usually posts in an article a couple of weeks before the resets. Enna doesn't claim to know how the fixed rate is actually calculated, he just seems to do a fairly good job of reading the tea leaves.

[foglifter]

What is the earliest date when the fixed rate forecast becomes more or less accurate? Will it be a couple weeks before May 1st? I want to set up a reminder for myself so I don't miss the narrow window to buy at the current rate if the announced May rate will be lower.

Alas, the fixed rate is usually announced on or just after May 1st and November 1st. The last couple of announcements have been a day or so early. So, because one cannot buy instantaneously with Treasury Direct, there is no window of opportunity... which is why ochotona suggested checking out David Enna's "prediction" (he always gives a a narrow range of probabilities, actually) that he usually posts in an article a couple of weeks before the resets. Enna doesn't claim to know how the fixed rate is actually calculated, he just seems to do a fairly good job of reading the tea leaves.

Thanks barrett, that's what I was looking for. I understand that any predictions shared before the official announcement are just predictions, but David's forecasts are accurate enough.

[sophie]

The writer of Tipswatch usually makes a prediction after the CPI figures are released - about 2 weeks in advance of the official announcement date of November or May 1. The variable rate is completely determined by the CPI so that figure will be precisely known, but the fixed rate is only an educated guess.

If you want to see if there's a chance the fixed rate will go up, you'd check in 2 weeks before end of April, then decide whether to buy later the same month (prediction of fixed rate staying the same or dropping) or wait for May 1 (prediction says it will go up). It is necessarily a bit of a gamble.

[foglifter]

If you want to see if there's a chance the fixed rate will go up, you'd check in 2 weeks before end of April, then decide whether to buy later the same month (prediction of fixed rate staying the same or dropping) or wait for May 1 (prediction says it will go up). It is necessarily a bit of a gamble.

Thank you, Sophie.

[barrett]

Just wanted to add the obvious.. that if the 5/1/24 reset ends up being just a shade over the current 1.3%, it's perhaps advantageous to buy now (or toward the end of January, 2024 if you have already purchased your $10,000 max for 2023) and get the clock ticking a few months sooner. Much depends on how much of a longterm play this lot of I-Bonds is.

[Dieter]

I did sell some 0% / low fixed rate I-Bonds and bought some new with the funds

Highest fixed rate since I've been paying attention to I-Bonds

[vnatale]

Just completed my annual $10,000 iBonds purchase for 2023! Will be effective tomorrow.

I've also tried four times to purchase an additional $5,000 of them each year via my tax return refund but have only been successful doing that twice out of those four years.

Need to check to see which of the two years were successful. It seems to only work every other tax return year.