I bond fixed-rate zero; new EE-bonds to earn 0.60%

The Treasury announced today that I bonds issued from today through the end of April 2012 will have a fixed-rate of zero. This is the third Savings Bond rate announcement in a row setting the I bond fixed rate at zero.

As we announced earlier, the I-bond inflation component for bonds entering new rate periods during the next six months will be 3.06%.

Normally the Treasury tries to keep about a 1 percentage point difference between the fixed rates for I bonds and 10-year Treasury Inflation Protected Securities (TIPS). However, yesterday the fixed-rate on 10-year TIPS was just .08%. Thus the spread today is just 8 basis points, which is a new record. The previous low was 50 basis points and was set a year ago today. (One percentage point is 100 basis points.)

The rate on new EE bonds will be fixed at 0.60% for 20 years. If you can invest in these and hold them for 20 years, at which point their double-value guarantee will give you a rate of 3.50%, they are one of the best Treasury investments currently available.

Keep in mind that the new interest rate for your I bonds will not necessarily begin in November. Instead, new rate periods begin every six months starting with the month in which your I bond was issued. So, for example, an I bond issued in July begins new rate periods in July and January.