US Savings Bonds

Posts Tagged ‘interest’

Question: Are US Series I Savings Bonds a Good Investment?

The IRS allows you to purchase them with your tax refund. Is this a good idea? What is current fixed rate? How is the 6 month inflation number calculated? It is from the CPI?

Answer: Gee Janice. You sure know how to get into the details. It is the CPI-U number published each month by the Federal Bureau of Labor Statistics. CPI-U means Consumer Price Index for Urban Consumers. The Fed usually defines Urban as all large cities plus SMSAs.. SMSA means Small Metroplolitan Statististical Areas. And that means urbanized cities with 50,000 population or more. Is it any wonder that people go nuts trying to understand this stuff.

Anyway. The Series I has two components – the fixed rate you know and the variable rate you should probably just google. If google does not cut it for you then here goes.

The November rate is based on the CPI-U for the previous March subtracted from the CPI-U for the previous September. That difference is then divided by the CPI-U for the previous March. If there is a March to September increase, then you get an increase. If it’s down, your rate goes down. This rate will now apply to bonds from November to April.

The May rate is based on the CPI-U for the previous September subtracted from the CPI-U for the previous March. That difference is then divided by the CPI-U for the previous September. And etc. per previous paragraph. This rate will now apply to bonds from May to October.

Right now I would say a good investment for staying safe and still having a shot at higher rates. Just my opinion on how I see the road ahead.

Professors Xiao, Huo on Current Economy 2/2

Question: Why does the bank up the street sell I-bonds for a lower rate than the Treasury?

I told my neighbor that Series I (eye, not one) Savings Bonds were being sold through the US Treasury at Treasurydirect.gov and earning a 5.64% interest rate. He went to his investment advisor at the local bank who told him they were only earning a 0.7% interest rate. I thought maybe he asked about the wrong series, so I checked online for EE, E and H/HH series bonds ,all of which are earning around 1.3% right now.

So what could explain the difference in rate?

Answer: The Series I Savings Bonds Interest rate is a combination (composite rate) of a fixed rate (currently 0.70%) PLUS an inflation rate.

http://www.treasurydirect.gov/news/pressroom/currenteebondratespr.htm

US Savings Bonds-The Story

Question: What is the Us Savings Bond Ee Series nominal maturity date?

Answer: “Series EE Bonds earn market-based rates that change every 6 months. There is no way to predict when a Series EE bond will reach its face value. For example, a Series EE Bond earning an average of 5% would reach face value in 14 1/2 years while a bond earning an average of 6% would reach face value in 12 years.

Series EE Bonds issued after 1 February 2003 must be held for at least 12 months before they can be cashed (bonds issued before then could be cashed anytime after 6 months).

Series EE Bonds absolutely should be cashed before their final maturity dates for the following reasons. Firstly, if you fail to cash the Series EE bond before the critical date, you will be losing money because the bond will no longer be earning interest. Secondly, under IRS regulations, tax is due on the interest in the year the bond is cashed or it reaches final maturity. If you hold the bond beyond 12/31 of the final-maturity year, then when you finally get around to cashing it, you will not only owe the tax on the earnings, but interest and penalties besides.”

“Before describing the specific conditions that apply to Series EE Bonds issued on various dates, it’s important to understand the terminology that is used in these explanations. The following list should help. Warning: this gets complicated quickly, thanks to your friends at the US Treasury.

Issue date: The first day of the month of purchase. Shown on the face of the bond. Note that the bond face may also show the date on which the Treasury processed an application and printed the bond, but that’s not the issue date.
Nominal original maturity (date): The latest date at which a Series EE Bond reaches its face value. Because the rate varies over the life of the bond, this is just an estimate. The applicable rates need only exceed the guaranteed rate (see below) by a small amount for the actual original maturity date to occur earlier than the nominal maturity date.
Final maturity (date): the date following which the bond no longer earns any interest (see discussion above about cashing bonds before this date). “