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.
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.