Explaining what happened to I bonds

Wednesday, May 10th, 2006
Categorized as: Yesterday's News (old post archive)

In his Sunday May 7 column, Anomaly Explains Puzzling Interest Rates for Series I Savings Bonds, Washington Post writer Albert Crenshaw does a nice job of explaining what just happened to Series I bond rates.

And in yesterday’s Even with rate changes, savings bonds still steady, Sacramento Bee writer Jack Sirard takes his swing at it.

What’s missing from Sirard’s story, but not from Crenshaw’s, is the concept that I bonds pay a wide variety of different rates depending on when they were issued. Reading Sirard’s story, you’d think all I bonds were suddenly paying 2.41%, when in fact some will pay as much as 4.62% during their next six-month rate period (and some as little as 2.01%).

Stories about Series I Savings Bonds should emphasize that what’s important to I bond investors is the fixed-base rate, not the composite rate.

And the fixed base rate just went up. As Dan Pederson, author of Savings Bonds: When to Hold Them and When to Fold Them, and Everything In-Between, says in Sirard’s story, that’s good news.

Although her story was written before the recent rate announcement, Sandra Block of USA Today actually included a table of I bond base rates in her article on April 28, I Bonds’ interest rate will get that sinking feeling May 1st. That’s impressive.

I have a similar table of I bond fixed rates here, but otherwise this information is hard to find.

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FDIC Insured Certificates of Deposit can pay 1 or 2% more than savings bonds when held for a similar length of time. See top CD Rates Below:


On May 10th, 2006 Sam said:

Since the fixed rate on the I bond is now the highest it’s been in several years, wouldn’t that mean these are actually quite attractive as far as long term investments? Do you think the fixed rate could or would go much higher in the near future?

On May 11th, 2006 Tom Adams said:

Sam – the I bond fixed rate has been as high as 3.6% in short eight years that I bonds have been available, so it’s reasonable to assume they’ll go that high again.

The particular combination of events that would lead to a high fixed rate for I bonds would be high interest rates and low inflation rates.

Obviously, the folks who have the 3.6% fixed rate I bonds have done quite well. As of November 2006 – after six months of the 1% inflation component – they’ll have a lifetime yield of 6.49% on an investment that carries less risk than anything else you could invest in.

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June 1, 2010

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Tom Adams

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