I bond investments drop below EE level in June

Thursday, July 13th, 2006
Categorized as: Savings Bond investment rate

For June, new investments in Series I Savings Bonds dropped below the level of Series EE investments for the first time since the method of setting EE rates was changed in May 2004. New EE investments in June were about $144.7 million while I bonds investments were $128.6 million.

I bond investments have dropped every month since January, when new I bond investments hit $1,302.0 million.

The drop is caused by the tendency of investors to chase the highest headline rate without sufficient understanding of what they’re investing in.

For example, June’s I bonds have a 40% higher fixed base-rate (1.4%) than January’s (1.0%) bonds that investors bought so heavily. Held for long terms, June’s I bonds will be the better investment.

But including the inflation component, which changes every six months and is the same for all I bonds, gave the Janaury I bonds a headline rate of 6.73%, which was only good for six months. The headline rate on the June I bonds, which have a much lower inflation component for their first six months, is just 2.41%. And most investors don’t look behind those headline rates.

Expressed as an annual rate, total Savings Bond investments in June were about $3.28 billion, which is the lowest level of new investments in several years. About 7% of the new investments were electronic bonds purchased at TreasuryDirect and the rest were paper bonds.

If you’re a reader of my book, Savings Bond Advisor, you have access to an online graph showing the level of Savings Bond investments since Series I bonds were introduced in 1998. Check your Book Notes for the link.

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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:

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Tom Adams

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