11-01-2005, 11:00 PM | Post #158745 |
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Well, I was focused on a 1 year CD alternative, though many are looking for a longer term placement of monies.|
I think, as I stated in other posts , that waiting was probably the thing to do.
Heres the math.
Buy I-Bonds in Oct.
Hold 1 year and redeem. Pay 3 month penalty (last 3 months interest)
total return (4.8% X .5) + (7% * .5) - (7% *.25)
= 4.15 Yield
(4.52 with the 30 day float factored in)
Buy Bonds in Nov or later
total return (6.8% X .5) + (?% * .5) - (?% *.25)
= ? Yield
Aha, we dont know the second period return, do we.
Well, I can tell you the break even return is a low 3% yield. In all likelyhood the rate will be higher. At 4%, the total return is 4.4%, a .25 point edge even with the unfortunate drop in the fixed rate. I was hoping they would leave that alone or even raise it, but no such luck.
Actual comparison to 1 year bank CD still favors the I-Bond for two reasons.
State tax exemption + the 30 day float when you buy at the end of the month.
Total return on the one year hold with the 30 day float, so its really an 11 month hold.
Second 6 month rate_____ Net return
Add in a few ticks for your state tax exemption if there is a tax in your state.
All in all, nothing earth shaking. The treasury has done a fairly good job of pricing this so they are not giving away the store.
Originally posted in thread: 44947