I-Bond vs CD

[Munsch]

I want the best interest rate but at the same time ease of adding more money to it time to time. I don't want to make it a hassle to get more money into it. My credit union has one of those coin change counters too which is helpful since that is the money we save up for her is the loose change. Wells Fargo no longer carries these, at least not in my area. My credit union has a 30 month CD rate at 3.00% but a rep at Wells Fargo told me something about I-bonds which I have no knowledge of.

Looking for options. I have about $300 to start out her account in and we want the best interest rate with low risk.

[Jim1cor13]

I want the best interest rate but at the same time ease of adding more money to it time to time. I don't want to make it a hassle to get more money into it. My credit union has one of those coin change counters too which is helpful since that is the money we save up for her is the loose change. Wells Fargo no longer carries these, at least not in my area. My credit union has a 30 month CD rate at 3.00% but a rep at Wells Fargo told me something about I-bonds which I have no knowledge of.

Looking for options. I have about $300 to start out her account in and we want the best interest rate with low risk.

Hi Munsch

There are several options to choose from, based upon

your risk tolerance. You mentioned you want best interest

rate with low risk, then perhaps the I bonds would better suit

your need at present. The 30 month CD @ 3% in my opinion is

an insult, but banks are not offering much, they just want your money.

If this is the start of a long term plan for your little girl, I suggest the I bond

route. The securities are protected against inflationary changes while they

are held by the investor, as their interest rates adjust to changes in the inflation rate.

You can buy in increments as low as 25$. You really cannot have a good interest rate

without higher risk, but with what you are looking to do, the I bond may be very

suitable.

Also, being that they are inflation sensitive instruments, this is important. I will

tell you now, the inflation coming over the next 2 - 3 years...(mind boggling), it may be

wise to consider if not the I bonds, at least something of a TIPS nature, or Treasury inflation

protected security.

If you want safety, you will have to settle for a very small interest rate of course. I hope this

helps in some way.

It is very nice to hear you want to do this for your daughter. Many people have forgot the term

"savings".

All my best!

Jim

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[Dalite]

http://www.savingsbonds.com/bond_basics/i-savings-bonds.cfm

History of the I Savings Bond

The I Savings Bond program was started on September 1st, 1998. The main purpose behind these new 'I' bonds was to protect the bond owner/investor from inflation. I Savings Bond rates are announced every May 1st and November 1st. If that day falls on a non-working day, rates are announced on the next working day. The following information topics are the major features associated with the Series I Savings Bonds.

Series I Denominations Available for Purchase

The following Series I Savings Bond denominations are available for purchase: $50, $75, $100, $200, $500, $1,000 and $5,000. Series I Savings Bonds are purchased at face value. For example: A face-value $100 I bond is purchased for $100.

The minimum purchase of an I Savings Bond is $50; The maximum purchase of I Savings Bonds annually, per calendar year, is 5,000 face value ($5,000 cash).

Because of the $20,000 total bond limitation which began Jan. 2008 - you can now only purchase a maximum face value of $5,000 ($5,000 cash) in paper I Savings Bonds a year. You may also purchase up to $5,000 in Electronic I Savings Bonds, $5,000 in cash of paper EE Savings Bonds and $5,000 in cash of Electronic EE Savings Bonds - all in one calendar year.

Maturity Rules for Series I Savings Bonds

All Series I Savings Bonds have a final maturity (stop earning interest) of 30 years from the issue date on the bond. All I Savings Bonds post their final maturity interest on the first day of the final maturity month.

Cashing-in a Series I Savings Bond

I Savings Bonds must be at least 1 year old before they are eligible for cash-in.

There is a 3 month penalty for cashing in an I Bond before it is five years old. For example, if you buy a bond and redeem it 24 months later, you'll get back your original investment and 21 months of interest. The value of the bonds would be based on the announced rates applied over the initial 21-month period.

To cashin an I Savings Bond, simply bring it down to your local bank. Be sure to call first, some banks do not handle the cashing in of US Savings bonds.

Only in times of a Federal Disaster being declared, can a Savings Bond be cashed-in before 1 year - however, the three-month penalty for cash-in prior to 5 years still applies.

MAKE SURE YOU KNOW WHAT YOUR BONDS ARE WORTH BEFORE CASHING IN! Savingsbonds.com has saved Savings Bond investors like yourself hundreds of dollars at cash-in because the bank calculated the wrong value for their bonds. Use our Savings Bond Calculator to find out exactly what your bonds are worth before you cash them in!

Buying Paper Series I Savings Bonds

Paper Series I Savings Bonds can no longer be purchased online. Only individuals opening a Treasury Direct internet processing account with the US Treasury Department can purchase Electronic EE Savings Bonds online.

To purchase paper Series I Savings Bonds you MUST go to a bank to purchase them in person. Be sure to call your bank before leaving home as the bank may or may not handle the forms for ordering paper Series EE Savings Bonds.

Interest Rate Rules

I bonds earn interest from the first day of their issue month. You can redeem them at any time after a 12-month holding period. They are an accrual-type security.

They increase in value monthly and the interest is paid when you redeem the bond. I bonds are sold at face value; i.e., you pay $100 for a $100 I bond. I bonds grow in value with inflation-indexed earnings for up to 30 years.

Interest is posted on the 1st of the month.

Interest Rate Calculations

The Series I Savings Bond earnings rate is a combination of two separate rates; a fixed rate and an inflation rate.

The I Bond Fixed Rate:The I Bond Inflation (variable) Rate:Announced each May 1st and November 1stAnnounced each May 1st and November 1stApplies to all bonds issued during the six months period beginning with the announcement date.Based on changes in the Consumer Price Indes for all Urban Consumers (CPI-U).Remains the same for the life of the bond.Changes every 6 month anniversary to the new variable rate set in the most recent month of May or November. The variable rate is then combined with the fixed rate to determine the earning rate of the bond for the next six months.How the I Savings Bond Rate is Calculated:

Fixed rates and semiannual inflation rates are combined to determine composite earnings rates. An I bond's composite earnings rate changes every six months after its issue date. For example, the earnings rate for an I bond issued in March 2000 changes every March and September.

Here's how the composite rate for I Savings Bonds issued May 1st, 2011 thru Oct. 31st, 2011 is set:

Fixed Rate: 0.00%

Semiannual inflation rate = 2.29%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]

Composite rate = [0.0000 + (2 x 0.0229) + (0.0000 x 0.0229)]

Composite rate = 4.60%

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