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[balor123]

Precious Metals CD. Interesting but perhaps still safer with i-bonds.

[admin]

That's pretty interesting, thanks. I'm a little skeptical to begin with of using precious metals as a hedge against inflation, and this vehicle cuts the potential returns in half, so I think I'd still prefer I Bonds for myself. (Of course, they aren't mutually exclusive.)

Speaking of I Bonds, I had a thought the other day on predicting I Bond rates. I was very disappointed when they announced the new premium for the next six months. The rate has been pathetic for awhile, and it's now even lower, and it almost felt like they are trying to drive away customers. Then it occurred to me to compare the I Bond rates with TIPS. I made some preliminary graphs for my own benefit, and it looks like the I Bond premium moves similar to the 5 year TIPS. I am just eyeballing the graphs and this is far from thorough, but it's something that I'd like to explore more. It could be very useful for timing future purchases since the premium is fixed for 6 whole months at a time.

- admin

[balor123]

The FatWallet community follows the i-bond rate pretty closely.

[admin]

Now that we are on the cusp of a change in I-Bond rates, I've made another graph to compare I-Bonds with the real yield curve:



Sources:

• http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml
  
• http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm
  

While the current inflation premium of 0.20% is very paltry, the real yield curve appears to have fallen across the board since it went into effect. 5 year yields are actually negative at the moment! Consequently, I think I'm going to gamble on I-Bond rates not increasing come November 1st and make my yearly purchase beforehand, unless FatWallet convinces me otherwise (I haven't checked there lately).

- admin

[admin]

[admin]

Ick. They held the premium at 0.00% for the May reset. On the plus side, the inflation rate has been set to 2.30% for the next 6 months, so previous I-Bond purchases continue look excellent relative to other ostensibly risk free alternatives (e.g., CDs and Treasuries).

- admin

[balor123]

Still not a bad interest rate, no? There's a post on Fatwallet about it.

[admin]

[admin]

In I Bond news, it looks like The Treasury is trying to do away with paper bonds:

http://www.treasurydirect.gov/news/pressroom/pressroom_comotcend0711.htm

This would effectively cut the annual purchase limit from $30K originally, to $10K recently, and soon just $5K without the separate paper option. You can supposedly still buy paper bonds with your tax refund, although who knows how long that will last. That would also make timing the rate change too inconvenient. Treasury Direct does have a mail-in form for ordering paper bonds, and their press release doesn't explicitly address whether that will remain, but emails exchanged with their customer service indicate that it is being eliminated too:

http://www.bogleheads.org/forum/viewtopic.php?p=1112039#1112039

- admin

[balor123]

Yeah I saw that. Bummer.

[admin]

Today I noticed a little bit of good news on the I-Bond front, at least with respect to the purchase limits. The annual limit for electronic purchases has been raised to $10K, probably because paper bonds are now all but discontinued:

http://www.treasurydirect.gov/indiv/research/articles/res_invest_articles_purchaselimits_0406.htm

Additionally, you can still get up to $5K in paper I-Bonds if you use your IRS tax refund. So you could potentially get up to $15K total per year now.

- admin

[admin]

Whoa. The inflation premium on new I Bonds is positive again, for the first time since May 2010:

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

I was caught off guard by this, given that the real yield on 5 year TIPS is still solidly negative:

http://online.wsj.com/mdc/public/page/2_3020-tips.html

It's still paltry at 0.20%, but that's still way better than an FDIC bank account.

- admin

[balor123]

Penfed is offering a 3yr CD over 2%. Interest rates are rising. My savings and the taxes they're gonna have to pay to keep up aren't thrilled about it but its probably for the better.