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?
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.