Savings Bond Alert #026
Wednesday, November 1st, 2006
Categorized as: Savings Bond Alerts
I bond fixed rate held at 1.40%; EE rate drops to 3.60%
The Treasury announced this morning that it will hold the fixed-base rate on I bonds at the current 1.40% for the next six months.
Combined with the new inflation component of 3.10% that I told you about in my last Savings Bond Alert, the rate gives new I bonds purchased between now and the end of April a six-month composite rate of 4.52%.
If you own older Series EE bonds, their rates also held steady or went up. EE bonds issued from May 1997 through April 2005 earn a market-based rate, which will be 4.39% for upcoming six-month rate periods. This is 28 points higher than the previous 4.11%.
The rate for EE bonds issued during the next six months, on the other hand, was dropped 10 points to 3.60% from the previous 3.70%. The 10-year Treasury rate on which the EE rate is supposedly based dropped 30 points over the last six months, so perhaps a 10 point drop isn’t so bad.
Nonetheless, at this point, investing in new EE bonds is for chumps. The EE bond rate-setting process the Treasury changed to in May 2005 is simply taking advantage of the people who don’t know any better than to invest in EE bonds.
Fortunately, investors have gotten the message. New investments in Series EE bonds in September were just $125.7 million, which is a record low. For the government’s 2006 fiscal year (Oct 2005 to Sep 2006) new investments in EE bonds were down more than 25% from the previous year. Moreover, they were down more than 46% from the 2002-2004 years before the EE bond rate-setting formula was changed.
I just got an email from my daughter asking what my wife and I want for Christmas. It’s still a little early to think about the holidays, but if you’re a Savings Bond investor, you could do a lot worse than to find a copy of my book, Savings Bond Advisor, in your stocking Christmas morning. (If it fits, by the way, you have really big feet.)
If that’s what you want to ask for this year, tell Santa it’s available from Amazon.com and Barnes and Noble stores (look near the beginning of the investment or personal finance section). If your bookstore is sold out and has to order it for you, they’ll appreciate the ISBN number, which is 0-9760645-2-9. Savings Bond Advisor by Tom Adams. Cheaper than an EE bond and it pays better.