I Bonds purchased from January to April 2023 will pay an annualized composite rate of 6.89% for six months, which includes the fixed rate of 0.4%. Is 6.89% attractive? Definitely. But let’s look at the alternatives:
A six-month Treasury bill has a nominal yield of about 4.76%.
Best-in-nation 6-month bank CDs are yielding about 4.4%.
A 1-year Treasury bill has a nominal yield of about 4.73%.
Best-in-nation 1-year bank CDs are yielding about 4.75%.
A 5-year Treasury note now yields about 4%.
A 5-year TIPS has a real yield of about 1.58%.
As a six-month investment, an I Bond definitely looks attractive. But keep in mind that an I Bond has to be held for at least 12 months, and redeeming before 5 years forfeits your last three months of interest. That brings uncertainty into the equation.
fair enough. Willing to stomach volatility in stock indices b/c long term trends are up/recovers . Crypto could go to 0.
Back to topic I Bonds my only concern is 0 years (I’ve had a few since I have “set it and forget it” since buying with a CC FWF days. I will be more mindful if /when inflation goes down. Thankfully it is headline news these days.
if my estimates are close we should expect the May I-bond to offer 0.7-0.9% fixed rates with 2-2.4% variable rates for a composite rate of 2.7-3.3%. This is far below the current 6.89%.
Although investors may be attracted to the 6.89% annualized yield, as compared to other fixed income assets, this yield is only offered for 6 months. If CPI ends up being 1% by May, resulting in the next variable rate of 2% annualized, I-bonds bought today will only offer 4.05% over the next 12 months when the early redemption penalty is assessed. Investors can earn 5%+ from the 1-year Treasury now.
It’s a very short term thing, annual CPI window vs the 6mo for I bonds. Energy and housing have dropped CPI lately, as well as some weird healthcare calcs, all the while Core CPI is running 5-6% annually each month. Basically, this most recent 6 month I bond period caught the downdraft and so may be a good time to sell / avoid.