The Treasury Department raised the fixed rate on their Series I Savings Bond from May 2008’s unprecedented ZERO percent fixed rate to a more enticing rate of 0.70%. Combined with the new inflation rate of 4.92%, November 2008’s I Bond total earnings rate is now 5.64%.
According to TreasuryDirect:
The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 5.64% earnings rate for I bonds bought from November 2008 through April 2009 will apply for their first six months after issue. The earnings rate combines a 0.70% fixed rate of return with the 4.92% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The fixed rate applies for the 30-year life of I bonds purchased during this six-month period. The CPI-U increased from 213.528 to 218.783 from March through September 2008, a six-month increase of 2.46%.
Purchasers are required to hold I Bonds for a minimum of 12 months and to forfeit three months worth of interest if redeemed before 5 years. But, the way the Fed is pumping out dollars, it looks like the inflation rate adjustment is more-likely to increase during next May’s adjustment. I Bonds also accrue interest tax-deferred and are free from State and local taxes when redeemed.
Compared with the rates earned for many savings account, CDs and money-market funds, I Bonds are looking like a good place to stash some cash.
Comments 2
Not a bad rate of return; this investment is considered relatively safe as well. This is a good way to balance out your portfolio. There are many other place to put your money then the stock market! Thanks for the tip on the bonds.
Posted 04 Nov 2008 at 9:32 pm ¶Yep, if one doesn’t want to be in the stock market right now this would be a good place to park some cash for a year or two, even with the penalties.
Historically speaking, this current I Bond fixed rate sucks. The inflation rate component makes it worthwhile right now, but in the long-term it would be better to own I Bonds with a higher fixed rate of return.
Luckily, I bought some I Bonds back in 1999 when the stock market was at historic highs and nobody would even “look” at I Bonds.
I still own them, with a fixed rate of 3.4% I’m now getting a 8.32% total return on those bonds! That’s pretty good these days.
Posted 04 Nov 2008 at 10:11 pm ¶Post a Comment