Finance: It's I-Bond time again

Every May 1 and November 1 the Treasury revises the interest rates paid on I Bonds, which are a kind of US Savings Bond that is indexed to the rate of inflation... after a fashion, anyway.

A major component of the bond's interest rate is the rolling 6-month inflation rate. Those numbers are released in advance, and September's 6-month inflation rate (just released) is used in the computation of I bond rates for November.

The 6-month inflation rate for September was 1.55%.

When that's cranked through the formula for setting the inflation-indexed part of the bond rate, it comes out to a bit more than 3.10%.

Then the government adds a "fixed rate" set by the Treasury, that isn't as predictable. The fixed rate has never been below 1.00%. For the current period starting last May, it's 1.40%.

FYI the fixed rate also adds a smidgen to the inflation-indexed part of the bond's rate, so if the fixed rate is 1.20%, and the inflation rate is 1.55%, the bond's interest rate would be 4.32% (not 4.30% as you might guess).

Anyway, the rate for November 06 through April 07 I Bonds will be: 3.10% + fixed rate

We can guess that the fixed rate will be somewhere between 1.00% (the historical low) and 1.50% (just above the current 1.40%) for a total interest rate of 4.12% to 4.62%

When to buy I Bonds
Currently, I Bonds have the worst interest rate of any government security or insured investment. There is little reason to buy them before the considerable rate increase that's assured for November.

The money that would buy those I bonds should be earning interest somewhere else right now, hopefully at 4.00% or higher (EmigrantDirect is paying 5.05% in an MMDA cash account, for example).

An optimal strategy for moving money into I Bonds at the new rate:

1. Maintain cash designated for I bonds in liquid (e.g. MMDA) accounts paying at least 4.00% until bond purchase.

2. Bonds pay interest for the entire month of purchase, even when purchased at the end of the month, so near the end of November, extract cash from the high-interest cash account and purchase I Bonds at the new rate, capturing regular interest on the money for November, AND an entire month of I Bond interest.

Considering the big increase in the rate, this approach probably works whether the accounts are tax-advantage (e.g. IRA) or not.

Investors who need to create or stay in a tax-advantaged investment in the very near term should consider purchasing 13-week T Bills in the interim... this pushes back the I Bond purchase date a bit, but bonds always adjust their rates at 6-month intervals, so a bond purchased in December or January will earn six months' interest at the new 4.x% rate once purchased, and will have its rate adjusted every 6 months thereafter.

Remember that I Bonds can't be cashed at all for the first year, and that a penalty of the 3 most recent months' interest is assessed if the bonds are redeemed in the first five years.

Followup: 11/1 Rate Announcement
The fixed rate as of 11/1 remains at 1.40%, so the new rate is 3.10% + 1.40% + (a bit more, see the formula for details) = 4.42%.



The ongoing discussion of I Bonds at Suite101.com is another place to chat about this kind of investment.

Process: Communication is the problem to the answer, Part 1 of N

Sure to be a recurring theme... communication breakdowns in everyday life...

Found on MySpace yesterday. Is this even English?

Process: Apple's battery puzzle

Apple's exploding battery return process includes a puzzle: fit a 3.75" label into a 2.75" space, without covering any of the necessary address information:



Turn page over for solution:

Process: EmigrantDirect's missing "delete" button

I wanted to remove a link between my Emigrant Direct savings and another bank account that I closed several months ago. So, I signed on (username, password, last 4 digits of SSN) and didn't know exactly what to look for, but assumed it'd be along the lines of "Accounts / Funding / Delete"

Here's the screen:



With no "delete" option in sight, I wrote to customer service... received this reply this morning (e-mail notification of "important message", then username, password, last 4 digits of SSN to sign on):



It feels more and more like organizations publish instructions that "seem" correct, whether or not they really are correct. In this case, there's no delete option, but the customer service rep presumes there should be... or it's missing from my screen due to some other business rule that nobody at the back end has told the front end about. In any case, it's a process failure on the bank's part... two people spent a lot of time working their way toward ultimately useless, redundant instructions.