Savings Bond Alert #020

Monday, May 1st, 2006
Categorized as: Savings Bond Alerts

New I bond fixed rate 1.40%; EE 3.70%

The Treasury raised the fixed rates on both I and EE bonds today. The new I bond fixed base-rate is 1.40%, up from the previous 1.00%. The new EE bond fixed rate is 3.70%, up from the previous 3.20%. These new rates apply only to new Savings Bonds issued from today through the end of October.

The new I bond composite rate, which includes an inflation component of 1.00%, will be 2.41% for the first six months. Older I bonds will pay rates varying from a low of 2.01% to a high of 4.62%, depending on their issue date, in their next six-month rate period.

The new I bond composite rate is dramatically lower than the previous 6.73% composite rate for new I bonds, which has been in effect for the last six months. The drop is entriely due to a fall in the inflation component of the composite rate.

The 6.73% rate was so attractive that investors put more money into Savings Bonds during the first six months of the government’s fiscal year (October through March) than during all 12 months of fiscal year 2005. From the perspective of a need to attract investors, the only pressure on the Treasury to enhance Savings Bond rates came from the upward movement of rates in the open market.

An example of that movement is the rate that will be paid by Series EE bonds issued between May 1997 and April 2005 in their next six-month rate period. This rate, which is determined by formula as 90% of the average 5-year Treasury rate, will be 4.11%, up from the previous 3.61%.

Some of the other stories on the Savings Bond Advisor web site since our last Alert 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:


On May 1st, 2006 Paul Bernstein said:

What will the rate be during the next six months on the bonds I bought in November 2005 (then 6.73%) please?

On May 1st, 2006 Tom Adams said:

Paul – for their second six-month rate period, I bonds purchased in Nov 2005 will have a composite rate of 2.01%.

The two rates together, 6.73% for six months and 2.01% for six months, will make an annual yield of about 4.40%, which isn’t bad compared to other low-risk investments that were available in Nov 2005.

Of course it doesn’t look all that good compared to what’s available now, but you can’t make decisions in November based on knowledge of where interest rates are going to be the following May.

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June 1, 2010

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Tom Adams

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