I know, there are lots of threads out there, but it looks like there's somewhat inconsistent information that's offered as an aside.

Quick question. EE bond rate is almost 4% right now. People seem to think that the rate will decrease come Nov. 1. If I buy EE bonds before end of October and get an Oct. issue date, would I lock in the approx. 4% rate for 6 months or would it just change to the then-current rate on Nov. 1st?

For I bonds, I believe that if I were to buy I bonds before Nov. 1 and get an Oct. issue date, I would at least lock in the fixed portion of the interest rate for 6 months/life? with the variable rate to flucuate to the then-current Nov. 1st rate.

Am I interpreting this right?

On the EE, you are correct. (I made the mistake of thinking otherwise once....)

On the I Bonds, you lock in the fixed rate for the 30 year life of the bond. You will lock in the inflation adjustment rate for the first six months. However, the fixed rate will change in November. (I believe it will drop since the most recent auction for inflation-indexed bonds went quite well.)
The correct decision depends upon your view and whether you are a long- or short-term holder.

Hi highgamma,
I'm sorry; I wasn't sure what your answer was regarding the EE. I'm right that the rate would be adjusted come Nov. 1st to the then-current rate?

I'm thinking of holding short term (6 months) but would like to wait to see what the rates are before I decide EE/I. Thanks.

Why would you hold bonds only 6 mos? You'd lose all that interest as a penalty if you sold them. This makes no sense unless your only goal is to get miles.

According to all the threads I've read, you lose some interest but not all. Strictly speaking, the rules say you lose 3 months, but based on timing of the purchase along with timing of your credit card cycle, you might actually only lose 1-2 months. And yes, it's for the miles. Especially now since regular money market accounts pay much less than the current EE bond rate.

What other goal could there be??

If I understand it correctly, the EE bond will definitely drop Nov. 1 since it is based on a percentage of the daily average of the 5 year bond - and that has pretty much gone steadily down since May 1 when the rates were set.

And so locking in the almost 4% for 6 months at the end of this month would be the best bet.

What web side do you use to by the EE or I bonds online ? and where does one sell the bonds after 6 mths.

ussavingsbonds.gov
I was hoping the fixed portion of I bonds would go up, but I now have to rethink putting off buying I bonds. If rates changes, then I will cash in the lower paying bonds, otherwise I do see this as a safe savings vehicles that is a great way to get miles. I started buying bonds before I read an article in the paper saying there was a web-site where you could buy them with a credit card. You have to check your local banks to see which one's will handle the transaction.

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Ms.DtG

There are several threads that have details on the hows, whats, and whys about bonds. Most banks cash bonds, some have reported having problems cashing I bonds at Citibank branches because of a computer issue.

If I remember correctly, US Treasury has set a minimum rate of 4% on EE [Patriot] bonds.

The EE rate is set at 90% of the average of 5-year T-note rates over the previous six months. Right now this average is around 3.6% and will keep falling over the next couple of weeks (fives are yielding 2.91% as I write this). So count on EE rates of around 3.15%.

The fixed portion of the I rate will almost certainly fall from the current 2%, among other reasons because bond rates have fallen across the board over the past six months. The floating portion should increase, however, because the CPI for the recent period has increased faster than it had from last October to March.

When the September CPI comes out in a couple days it'll be possible to compute the floating portion exactly, but right now it looks like it'll be in the range of 2.5-3%.

So if the fixed part drops to 1.5%, the overall I rate will be low 4s. Although this is higher than the current I rate of 2.57%, that's illusory because existing I bonds (that have higher fixed portions) will get the higher floating portion eventually.

Moral: buy the bonds before October's out, and DO NOT flip your existing I's because you'll lose the higher fixed part. You have my permission to flip EE's, though, not that I'd do it myself.

BTW, it's possible to flip bonds on your credit card without losing ANY interest, which is left as an exercise for the reader.

Whew, that's my smart post for the week.


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LastClass... formerly Frequent Freak

EE's issued after May 1997 are guaranteed to reach face value after 17 years. This equates to an annualized yield of 4.16%, the seventeenth root of 2 (1.04162).

Hi VolleyBall Ferd, I'm not sure how to read your post. So would buying the EE bonds now before Nov. 1 lock in the current rate for 6 months or would the rate be automatically adjusted to the then-current rate when Nov. 1 rolls around?

As someone else says, that implies holding it for the life of the bonds. I'm thinking of holding for the 6 months minimum.

LastClass, that's interesting about how you're estimating the rate for the I bonds. I'll do some more research on whether it makes sense to buy those versus the EE bonds.

Thanks all!!

Does anyone have a link to the $30,000 limit? Is this per social security number, per person, or per credit card?

Also, is the rate paid on the savings bond locked in when you buy it or does it change every 90 days?