Savings Bond Alert #024

Friday, September 15th, 2006
Categorized as: Savings Bond Alerts

Next I bond inflation rate likely to be in 4%-5% range

This morning’s CPI release for August showed inflation up 3.8% from a year ago. We now have CPI data for five of the six months between March and September that will be used to calculate the next I bond inflation component, which will likely end up somewhere between 4% and 5%.

Add that to the fixed base-rate of your own I bonds to determine what rate you’ll get for the next six-month rate period. New I bonds will likely have a fixed base rate in the 1.0% to 1.4% range, for a composite rate that’s most likely somewhere in the 5% to 6% range.

Soon after my report about TreasuryDirect security last month, a software bug was found that was preventing certain kinds of email notifications from going out. The bug was fixed and now TreasuryDirect’s email notifications are working like they should. This is great news. Combined with other recent enhancements, it gives TreasuryDirect industry best-practice security.

Other stories on the Savings Bond Advisor web site in the last month include:

Rate this post (1 to 5 stars):  1 Star2 Stars3 Stars4 Stars5 Stars
(Average rating: 5.00 stars)
Loading...

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 September 15th, 2006 June Brettler said:

How did you determine that the next fixed base rate is likely to be between 1 and 1.4%?

On September 15th, 2006 Tom Adams said:

June – while the Treasury has never announced what its criteria are for setting the fixed base-rate, it’s possible to guess a probable range for the upcoming rate.

In terms of the low end, they’ve never set it below 1% in the past and there’s no reason for them to do it now.

In terms of the high end, two factors come into play. One is the current rate for TIPS, which I discuss in Series I Savings Bond fixed base-rates.

The other is that when the inflation component is relatively high, the Treasury can set the base-rate lower than it otherwise would and still sell lots of I bonds because so few investors understand how the security’s interest rates actually work.

TIPS are now trading about where they were six months ago, which would indicate the Treasury might offer the same 1.4% base rate as it did six months ago.

However, the inflation component will be the second-highest ever, which may cause the Treasury to set the base rate lower than that.

On September 20th, 2006 Ken said:

I hope the Treasury won’t drop the base-rate even if the inflation rate is very high. The 1.4% is still way below where it use to be back around 2000. I remember when the base-rate dropped from 3.00% to 2.00%. I actually held back on more I-bond purchases thinking it would eventually go up.

But based on the recent history at the Treasury, I think your 1-1.4% guess is solid. I’m just hoping for a pleasant surprise. Maybe with the very low demand on savings bonds, there’ll be some pressure on the up side.

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

Savings Bond Calculator



Help

Savings Bond
Questions

Get an answer to your questions from the Treasury's Savings Bonds team.

Click below to ask a question.

Ask the Treasury

TreasuryDirect

Invest online in Savings Bonds or
marketable Treasury securities.

Deal directly with the U.S. Treasury.

More info

Enroll

Log in