Time to dust off the Savings Bond interest rate crystal ball
Friday, March 31st, 2006
Categorized as: Yesterday's News (old post archive)
You have been right about I bond rates in the past. What’s your best guess for the new Series I and EE rates May 1.
Thank you for misremembering my accuracy. Last November I predicted that the Treasury would increase the Series I bond fixed rate – instead the Treasury lowered it.
Nonetheless, I’ve fearlessly dusted off my crystal ball for you. Let’s see if it works any better this time.
For Series I bonds, I think the inflation component is going to be near the current record low from spring 2002, which was 0.56%. Because the inflation component is low, I think the Treasury will raise the fixed rate component.
Based on current five-year TIPS rates and how they’ve done this historically (except for last time), they might go a bit higher than 2%. They fooled me badly last time, but I’ll stick my neck out and give them a chance at a repeat performance.
Put that together and you get a composite rate on new I bonds of about 2.5%. But stay tuned – we’ll be able to hone this prediction as we get closer to May 1.
The Series EE rate has only been set twice under the new fixed-rate rules instituted on May 1 last year. However, both times the rate was set at about 80% of the average 10-year Treasury rates for the previous six months.
If that holds true this time, we could see EE rates a bit higher than 3.5%, but this prediction is highly dependent on what 10-year rates do between now and May 1.