Advertising Disclosure
  1. Home
  2. Community
  3. Ask
  4. I Bonds Lowest Yield

I Bonds Lowest Yield

arthurtony
  |     |   24 posts since 2016

I hate to ask such a stupid question that I should be able to figure out. What is the lowest yield the I bond has ever paid. I get that everyone thinks it's a no brainer, but if it drops to the .40% what am I missing?

  Post an answer
3


Answers
MAKNYC
  |     |   323 posts since 2015
0.00% in 2015.
As for the .40% that you mention I suspect you think that is your lowest possible annualized return?  If so, that’s not correct.  Deflation would neutralize the fixed rate component as well, but with a 0.00% composite rate floor.
Reply
3
arthurtony
  |     |   24 posts since 2016
So again, I'm stupid. Once it drops to 0% your money is sitting there earning 0%? You would then divide the interest earned by the years you held the bond, which would decrease the current attractive 6.89%. I suppose the answer is simple - you cash out - with all the other caveats to consider. Am I thinking straight with my $20,000 (husband and wife) purchase? It sounds like one of those blended rate CD's which are usually very gimmicky.
Reply
1
choice1
  |     |   370 posts since 2023
No different than if the opposite happened ie rates went up…Blending 101
Reply
1
MAKNYC
  |     |   323 posts since 2015
If the CPI drops to 0% over a 6 month measurement period, then yes the inflation adjustment would reset to 0% as well and bonds recently purchased would earn their fixed rate .40% (annual) + 0%. CPI is currently running at below 2% if you extrapolate the 3 most recent readings, and likely going lower barring an explosion in energy prices.

As for the purchase decision, it has been discussed in earlier threads so I don’t want to open that can of worms here again. But I think it would be a horrible mistake to buy I-bonds now. At a minimum wait until mid-April and you will know for certain what your full year (and minimum holding period) return will be. You give up no return by doing this and you cement your informational advantage. In addition you earn an inflated rate on your capital while you wait and that type of rate won’t likely be available on the tail end when you choose to redeem. Frequently argued ‘starting the clock earlier’ comments rarely make any sense, unless you know now of a future date when you will need the money back for an alternative purchase.
Reply
4
arthurtony
  |     |   24 posts since 2016
Thank you all for taking the time to respond. I'm fairly knowledgeable when it comes to investing, but I know next to nothing about I-bonds. After decades of investing in the stock market, I am gradually easing my way off that roller coaster ride. After reading all the posts about the stategies to maximize the $10,000 limit with businesses, etc., I thought I was not completely understanding. I think I've got it now. Waiting until April was something I never thought through. I'll do just that. Who knows what might happen between now and then.
Reply
1
calwatch
  |     |   65 posts since 2018
The other thing is that regardless of when you buy, you get the current rate for 6 months. So take advantage of the high rates now, since that 6.48% will likely be very competitive this summer when rates start their inevitable slide down.
Reply
1
CuriousDave
  |     |   233 posts since 2018
According to the TreasuryDirect site’s listing of historical rates going back to when I Bonds were first offered in September 1998, the six month inflation rate component dropped below zero only twice. First, in May 2009 (-2.78%), when the fixed rate was 0.10%, and then in May 2015 (-0.80%), when the fixed component was 0.00%, so the composite six month rate for purchases made from May through October for both those two six month periods was pegged at 0.00%, and those appear to be the only times when the zero minimum combined rate floor rule kicked in. The six monthly inflation component rates were below 0.50%, but more than zero, three times since 1998: May - Oct. 2002 (0.28%), Nov. 2010 - April 2001 (0.37%) and May - Oct. 2016 (0.08%).
Reply
3
buckeye61
  |     |   454 posts since 2011
Interest on ibonds compound semi-annually. The composite rate is guaranteed to never fall below zero, but there has been several times when the inflation component was negative during deflationary periods. It's possible that the next inflation rate adjustment in May will be near zero or even negative. The bigger question is how much the fixed rate will be adjusted up in that scenario.
Reply
3
IGR
  |     |   580 posts since 2020
not to make any more needlessly complicated
it is a brainer.
While in 2015 composite rate was 0%, it wasnt 0% paid!
Lowest ever paid, as far as I understand and Treasury reports as "Yield from Issue", was 0.4% for Bonds purchased in 2015 and redeemed in 2016.
There is nothing ANNUAL about Bonds, it is ANNUALIZED, where the ANN is 12 months in 6 months increments May-to-November and November-to-May.
Bonds do NOT pay INTEREST, Bonds generate Yield trough change of the Value between Bonds Purchase price and Redemption Value, where the Value is promised not to be less than the Price paid, the Yield will never go below Zero.
Since there is No Interest, there is nothing to lose. Bond current Value is calculated first of every month and available for Redemption until first of the next month when Yield and Value may be different or remain unchanged in 0% composite rate scenario.
Reply
1


The financial institution, product, and APY (Annual Percentage Yield) data displayed on this website is gathered from various sources and may not reflect all of the offers available in your region. Although we strive to provide the most accurate data possible, we cannot guarantee its accuracy. The content displayed is for general information purposes only; always verify account details and availability with the financial institution before opening an account. Contact [email protected] to report inaccurate info or to request offers be included in this website. We are not affiliated with the financial institutions included in this website.