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How do you buy I Bonds?

how do you cash savings bonds

“I” bonds are U.S. savings bonds .  Rate varies, depending on inflation, but it’s never below inflation.  Can’t cash in for one year from purchase.  Pay 3-month interest penalty if cash in within 5 years.  Interest is tax free until you cash in the bond.

Would you ask them the total amount that you would get if you cashed in one of them that has been there just one year?

I want to check their actual payout from your past bond purchases to see what the overall interest rate was.  I understand the 3mo penalty in cashing in early — not much of a penalty.   6.74-(4/12 of 6.74)=4.49, meaning after 12 mo the payout should be about $1046 for a 1000 bond after 12 months.  Is this correct?

Would you ask them the total amount that you would get if you cashed in one of them that has been there just 2 years?

4   Would you ask them the total amount that you would get if you cashed in one of them that has been there for 5 years?

5   What is the CUSPID number for this I bond?

On appearance, these I bonds look incredible.  Does the 6.74% stay for any of these that I buy this month?  Can the rate go down during the 12 months if I only hold the bond for 12 months?  Can the rate go down if I hold the bond for 5 years?  Current rate is 6.74% but, remember, it varies.

WARNING:  Do not get involved in I-bonds with their rates going down

I would not give these I Bonds another look after an article from Money magazine while on the airplane.  The I Bond currently pays 6.73% now and while that sounds tempting – it looks too good to be true and it is.  The interest rate of an I-bond is made up of two things.  One is the fixed rate currently at 1% and then you have the variable rate which is tied to inflation data.  Inflation data comes out twice a year.  I-bonds will likely pay out 2% interest once they reset their rate in May.

You must hold on to I bonds for a full year.  If you sell them before a five year term is up then you will get a penalty.  There is nothing about I bonds that sounds appealing to me. Furthermore, if you are looking into EE Bonds I read that they are not much better according to Money magazine.

The best way to invest money you need at a certain time is with a CD .  Looking at money market high interest the CD’s do not stand out either.  So the real thing to do is

the following:

  1. Open up an account with Emigrant Direct  (Up to 100k FDIC)
  2. Open up an account with HSBC Bank US for $4.68% rate I think may go up or down April 30.
  3. Open an EVERBANK CHECKING account JUST for the promotion of 3 months giving you high APY – You cant find anything higher for this for 3 months This will be for a highly liquid checking account where you can make as many withdrawals of the money you want.  No fees, No Federal Bond mess.  After 3 months the interest rate goes down from 5.51%APY to the current rate 4.01% which is still a great rate – where you can easily switch that money back to Emigrant Direct without loosing out to any fees.
  4. ING Direct is around 2% APY

Readers Comments on I bonds:

As for the I-bonds, I think you need to double-check that because the I bonds have been paying more than the E bonds at least, for quite some time.  The deal is that it stays ahead of inflation, though not by much.  But it’s only for fogies like us who want a long-term, ultra-safe place to put money.  But you’re right about everything else on the I bonds…and the 6.73 rate is definitely not going to stay with us for long.  Usually, bonds pay about 4 per cent or so.  I buy my I bonds through payroll deduction.  There’s nobody to talk to about it.  The Bush administration stopped the marketing of bonds a few years ago (used to be we’d have a yearly bond drive with lots of info and sales pitches.)

You can buy them online through the site I gave you.  That site also contains pretty much all the information that’s out there officially.  And if you read it all you’ll know a lot more than I do.

The 6.74 I Bond rate is NOT PERMANENT.  The rates adjusted every six months and the only thing you can be sure of with I bonds is that the rate will stay a little ahead of inflation.

If you want higher rates that are fixed (at least for the duration of the investment period) you might want to look at CD returns with online banks.   Supposedly they pay more than bricks-and-mortar banks and there’s that lovely FDIC thing but you really have to research that, I would think.

Look here for more information on I Bonds:

NOTE:  I Bond rate was last checked 4/20/2006 at time this article was written.  We do not endorse nor engage in the sale of I Bonds.  All of the money market, checking, and savings rates listed above may not be current.

Category: Personal Finance

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