Savings Bond Alert #019

Wednesday, April 19th, 2006
Categorized as: Savings Bond Alerts

Next I bond inflation component 1.01%

The Consumer Price Index for March, released this morning, was 199.8. The inflation rate paid by Series I Savings Bonds is based on the difference between the March and September levels of the CPI. Expressed as an annual rate, the March number is 1.01% above September’s level of 198.8.

This will create the second-lowest inflation component for I bonds since they were introduced in 1998. Only the 0.56% rate announced in May 2002 has been lower.

The current 6.73% I bond composite rate has caused investors to pour money into I bonds. Although they may be disappointed with their second-half earnings, their first-year yield will still be a very respectable 4.36%.

The low inflation component combined with continued upward movement in the market-based rate for TIPS, the Treasury’s other inflation-protected security, should cause the Treasury to raise the fixed base-rate for I bonds issued after May 1 above its current historic low of 1.00%.

Meanwhile, investors who like inflation-protection and who have TreasuryDirect accounts have an opportunity to invest directly in new 5-year TIPS early next week. The Treasury’s official announcement comes tomorrow, but the tentative announcement says orders have to be placed by Tuesday morning. Look on the www.savings-bond-advisor.com web site tomorrow for detailed information.

Some of the other stories on the Savings Bond Advisor web site in the last month include:

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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:

3 Comments

On April 19th, 2006 Darrell Mak said:

Hi Tom,

So, since we now know that the next I bond inflation component is 1.01%, do you know what the I bond rate will become?

THANKS!

On April 19th, 2006 Tom said:

If the Treasury doesn’t raise the fixed component in May, that means that I-Bonds will be paying a pitiful 2.01%. Bond buyers will jump ship by the thousands in favor of one-year bank CDs; 4.5% CDs are easy to find these days.

On April 19th, 2006 Tom Adams said:

Darrell – The next I bond rate for your bond depends on when the bond was issued. You can use the table of I bond fixed rates on my page about I bond fixed rates to find out what fixed rates your I bonds pay.

Add your fixed rate to the inflation component and you’ll basically have what your I bonds will pay during their next six-month rate period. The actual rate will be a bit higher because of an additional adjustment the Treasury makes.

If you’re asking what the fixed rate will be on new I bonds issued from May through October, we won’t know that until the Treasury makes its May 1 rate announcement.

Tom – don’t forget that the 2.02%, like the 6.73%, is a six-month rate. While you’re right that we can tell from the sales figures during the last six months that most I bond investors don’t look past the rate for the first six months, the first-year yield on the 6.73% I bonds looks very good compared to other investments that were available last November, although not now.

Comments Closed

June 1, 2010

After six years, over 400 posts, 3,680 real comments, and over 90,000 spam comments (thank you, Akismet, for making managing a blog with comments possible), I am closing public comments on Savings-Bond-Advisor.com. I will contine to update the main articles on this site, but not the comments.

Virtually every question about Savings Bonds has been asked and answered on this site multiple times. Use the search feature (see the box in the gray area near the top of this page) or the detailed menu on the lower part of the home page to find the information you're looking for. If you have a copy of Savings Bond Advisor, you can ask me a question here.

Tom Adams

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