Should I buy Series I Savings Bonds now or wait?

Friday, March 3rd, 2006
Categorized as: Yesterday's News (old post archive)

One of the comments here says that the Treasury may raise the I bond fixed base rate if the inflation component becomes uncompetitively low. Would this be a reason to hold off buying until after the next set of rates are announced? If I understand correctly, we would be locked into the current 1% fixed rate for the entire 30 years.

Tom’s response

You’re right that an I bond’s base rate is fixed for its entire 30-year life, but otherwise we’re all just guessing in the dark. We don’t know for sure that the next I bond inflation component will be low and, if it is, we don’t know whether that would actually impact the fixed rate.

At the same time, it’s hard to pass up six months of 6.73%. In the worst possible case, the next rate is zero and your one-year yield is 3.37%. You would be able to get out of this investment a year from now with a three-month penalty of 0%. You might miss a better fixed-rate, although you might also gain one a year from now. Who knows? We’re probably talking about a difference of less than one percent anyhow.

Another option is to split the difference and invest some now and some later.

Or we could actually do what professionals recommend and invest month after month rather than saving up a lump of funds and then investing. Using TreasuryDirect, Savings Bonds are ideal for this kind of investing.

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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 March 3rd, 2006 Dean said:

I buy 2 I bonds monthly no matter what the rate is. So I get the good rates with the bad rates and it evens out. Tom what do you think of this good or bad?

On March 3rd, 2006 Tom Adams said:

Dean – I agree that regularly scheduled investments are the best way to save.

At the same time, I recognize that people sometimes have a large lump of cash from a bonus, inheritance, or other payout that can’t be invested that way. In that situation, rather than betting on a single investment horse, it’s safer to spread the money over several choices.

On March 3rd, 2006 Mario said:

I think it would be reasonable advice to tell people at this time to wait for April 19 CPI figures if they are concerned about the upcoming rate and willing to stay on top of this. I did a statistical (although not economically based) analysis of CPI changes for past time periods and it appears that the 1-year yield for new I bonds would be unlikely to beat other no-risk alternatives currently. But, it doesn’t really hurt to wait and buy between April 19-30 if rates don’t look as bad as it seems they will. In the meantime, potential I bond buyers can get a very competitive return from an online savings account, for example.

On March 6th, 2006 PHOEBE said:

Hi, Am just starting with treasury direct for I-Bonds. Really a rookie !!

I will be investing a total of 150K. So far i have gleaned to set up say 15k in 1k increments to cover a possible emrgency with the children so i only cash in that 15.

This money is for our retirement so i was thinking of putting 80k in for a 5 year term,

and at same time 10k 6 year

” ” 20k 7

” ” 40 8

I would put these amounts into 5k amounts, e,g, the 40k would be eight of the $5000.

I am not at all expecting you to have a crystal ball on the market. nothing to do with that. instead my question is since i do not expect to need the money for at least 5 years and more likely 8 to 10 years, is my suggested staggering sensible vs. say putting the longest bond at 4 years. The tax delay will be very suitable for me.

On March 6th, 2006 Tom Adams said:

Phoebe – Unless I’m misunderstanding your question, Savings Bonds don’t have the kind of terms you’re thinking they do.

All the Savings Bonds you get today can be cashed one year after issue. There is a three-month interest penalty if you cash before five years. They stop paying interest after 30 years.

Savings Bonds are very different from other corporate and government bonds, which definitely do have terms.

On March 9th, 2006 Mario said:


Also, you don’t have to buy them in small increments because you can make withdrawals in any increment. I.e. you could get a $30,000 I bond and withdraw $1000 for instance (in TreasuryDirect it works that way, not with paper). Keep in mind your annual limit (per person) is $30k in TreasuryDirect and $30k in paper bonds. If you’re in it for the long run, you may want to wait and see if the Treasury decides to raise the fixed rate of the bond in May.

On March 11th, 2006 Jo Hailey said:

After reading some of your mail, it is my understanding I can buy up to $30,000 worth of ibonds annually. I assume I can buy them in $10,000 increments, true?

On March 11th, 2006 Tom Adams said:

Jo – you can buy Series I bonds in increments as small as $25 at TreasuryDirect or $50 with paper bonds.

And you can invest $30,000 in electronic I bonds at TreasuryDirect plus another $30,000 in paper I bonds at your bank for a total of $60,000 per year (per Social Security Number).

On March 13th, 2006 Six said:

The one draw back of buying bonds from treasury direct is that you can’t name a family trust as the owner. You can when buying them from a bank and taking possession of them.

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 I will contine to update the main articles on this site, but not the comments.

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Tom Adams

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