New I Bond fixed rate 0.00% – EE 1.40%
Thursday, May 1st, 2008
Categorized as: Yesterday's News (old post archive)
The Treasury will lower the fixed interest rates it will pay on Savings Bonds issued during the next six months, it announced this morning.
For Series I Savings Bonds, the fixed base-rate will be nothing at all – 0.00%, down from the previous 1.20%. For Series EE Savings Bonds, the fixed rate will be 1.40%, down from the previous 3.00%.
Yesterday, the 10-year TIPS rate was 1.50%. The 150 basis point difference between the TIPS rate and the I bond rate is the worst the Treasury has offered since I bonds were introduced. Moreover, the 120 basis point drop from the old rate of 1.20% is the largest six-month change in the fixed-rate since I bonds were introduced. Previously the largest six-month change was 100 basis points (from 3.0% on May 2001 to 2.0% on Nov 2001).
Combined with the EE bond rate and the reduction in maximum purchase limits, it’s like the Treasury is heaping scorn and ridicule on Savings Bond investors.
During their first six-month rate period, I bonds issued beginning today will have a composite rate of 4.84%. The inflation component, which changes every six months for all I bonds, will be 4.84% for the next six-month rate period.
In their next six-month rate period, older I bonds will pay a variety of rates, depending on issue date, ranging from a low of 5.04% for I bonds with the previous lowest fixed base-rate of 1.00% to a high of 8.53% for I bonds with the highest fixed base-rate of 3.60%.
The new Series EE bond rate, which is set “administratively” but is based on the average rate for 10-year Treasury securities, continues to lag well behind the rates set for EE bonds issued from May 1997 through April 2005. The rate for those bonds is set by formula – 90% of the average 5-year Treasury rate. They will pay 2.74% during their next six-month rate period.