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:

6 Comments

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.

Virtually every question about Savings Bonds has been asked and answered on this site multiple times. Use the search feature (see the box in the gray area near the top of this page) or the detailed menu on the lower part of the home page to find the information you're looking for. If you have a copy of Savings Bond Advisor, you can ask me a question here.

Tom Adams

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