Meager rollover opportunity available
Monday, November 2nd, 2009
Categorized as: Series I US Savings Bonds
The new 0.3% fixed rate gives a meager opportunity to upgrade I bonds purchased between May and October 2008, which have a fixed rate of 0.0%, to get a better fixed rate.
Note that doing the rollover will earn only an extra $3 per $1,000 invested per year. For I bonds issued between June and October you'll also gain a bit by limiting the number of months your bond investment earns 0% to less than six.
Combine that with the annual I bond investment limit of $5,000 paper and $5,000 electronic - yes, rollovers count against the investment limit - and the maximum benefit a single individual can get from a rollover is $30 year. But that is $900 over the 30-year life of an I bond.
If you're going to do this, you should do it while your three-month interest penalty for redeeming before your bond's 5th anniversary is zero. You'll get that low penalty because your I bonds have been or are now earning a 0% rate.
If you want to do a rollover, I bonds issued in:
- May, June, July, and August 2008 can be rolled over without penalty in November 2009
- September 2008 can be rolled over without penalty in December 2009
- October 2008 can be rolled over without penalty in January 2010 - or, if you want the purchase of the new I bonds to go against your calendar year 2009 limit, you can rollover in December 2009 at the expense of a one-month interest penalty of $4.40 per $1,000.
Keep in mind you'll also get a 1099-INT for the interest your I bonds earned between the time you bought them in 2008 and the time you cashed them in to purchase new ones. The tax on this interest will be less than the interest itself, so you'll have a bit left over.
(Average rating: 3 stars)
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Is there anything special I need to do to rollover a bond or do I just go to the bank and cash in the old ones and then buy new bonds? (I have paper bonds…so I might not be able to do a 1 for 1 rollover).
Tom: How do you feel how about purchasing I bonds in Dec and Jan based on the inflation results in Nov and Dec if the results are high and what would be acceptable to you. Thanks
Ray - That's it. You cash the old one and buy a new one.
William - If you make your decision by comparing current I bond rates with previous I bond rates, then the current rates look terrible. On the other hand, those rates from the past aren't available anymore. You have to compare the current I bond rates with other rates available to you today in the marketplace of investments. In that comparison, I bonds come out like they always do in real-time: not all that attractive, but without the warts of other investments. In the long view, I bond investors have done quite well compared to others.
Tom Adams
Please explain to me how a $10,000. “I” bond, purchased 04/2001,with a 3.4% fixed rate can have a 0% composite return for Oct 2009.
Jim - this I bond earns a composite of the 3.4% fixed rate plus the inflation rate. The inflation rate used in the calculation for this bond in the Oct 09-April 10 rate period is -5.56% (the annualized change in the Consumer Price Index between Sep 08 and Mar 09). So your rate should really be -2.16%, but the composite rate can't go below zero. You are very lucky to have an I bond this large with a fixed rate this high. Don't even think of cashing it in.
Tom Adams