What if the next Series I Savings Bond rate is 0%?

Monday, February 27th, 2006
Categorized as: Series I US Savings Bonds

So if I have I bonds that are over a year old and the next I bond inflation rate does come in at 0%, would it make more sense to wait three months, then cash them in? Or should I hang on for another six months to see if the CPI increases?

Tom’s response

I like I bonds because I’m worried about the amount of debt the U.S. is in. The only easy way for politicans to get out of this debt hole – and I don’t see today’s politicans ever agreeing on anything that isn’t easy – is inflation.

That’s the risk I’m trying to protect myself from and I’m willing to take less than the highest yield to get that protection. Series I Savings Bonds and Treasury Inflation Protected Securities (TIPS) are the only investments guaranteed to protect you from inflation.

Six months at 6.73% and six months at 0% gives an annual yield of 3.37%. Even that is better than the 3.20% we would have gotten from EE bonds.

You make a good point that three months of 0% erases the penalty for redeeming before five years. Moreover, as Dan points out in this comment, if the Treasury raised the fixed base-rate significantly to compensate for a low inflation component, those of us who own I bonds with a low base rate would get an excellent opportunity to switch to bonds with a higher base rate.

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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 February 28th, 2006 willaim said:

Dont understand why anyone thinks the I rate is going to 0. The cpi-u is higher than it was a year ago when the rate was set at 4.8%.

On February 28th, 2006 Dan said:

It’s the change in CPI-U over the previous six months that matters though. And as far as changes over a six-month span go, as of May 1st it’s nearly certain to be relatively small (unless there’s some seriously crazy inflation before then).

On February 28th, 2006 willaim said:

Dan: So you saying we go to 0% for the May 06-Nov 06 period if the rate is even .1 under the previous 6 mo. rate. If so that sucks. TIA

On March 1st, 2006 Dean said:

Is it correct that if you buy an I bond in April of 06 it will earn the 6.73% until September of 06?

On March 1st, 2006 Tom Adams said:

Dean – yes that’s correct. The Treasury will announce a new inflation rate on May 1, but for an April 06 I bond, that rate won’t kick in until October 06.

On March 2nd, 2006 Tom Adams said:

The Savvy Saver blog says:

I came across this little blurb about the potential for I-bonds to have an inflation interest component of 0% for the next go-’round….

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.

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Tom Adams

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