Wow the rate on I bonds dropped to -5.64 due to deflation as measured by the CPI. Since savings bonds are never allowed to lose money, the rate for all I bonds over the next 6 month period is 0%. The last 6 months I bonds yielded a hefty 5.64% as inflation was a big story May-Nov of 2008. Series E Bonds now yield 0.70% compared to 1.30% Nov 08- May 09. Series I Bonds return is based on two components, the fixed rate that is determined every six months and is fixed for the life of the bond and then added to that is the change in inflation. New I bonds being issued between May 2009 and November have a fixed rate of 0.10%, almost nothing. My advice: do not buy any savings bonds over the next six months. Here is a good website for everything you need to know about savings bonds.-Lou http://www.savingsbonds.com/
'I Bond' Payments Get Wiped Out
Rates on government securities, certificates of deposit and savings accounts all have plummeted in recent months. Now, yields on another safe haven -- Series I Savings Bonds, or I bonds -- are dropping to nothing.
Friday, the Treasury Department said these inflation-linked bonds that are purchased between May and October will earn 0% for their first six months, the first time rates have hit 0% since the bonds were issued in 1998. The announcement also affects current I-bond owners, whose interest rate drops to 0% the next time their rates reset.
Blame the financial crisis. Normally, yields on inflation-linked investments gradually rise as prices rise. But amid the sharp drop in consumer-price inflation last fall, returns on many inflation-linked products were hammered.
Rates on I bonds, whose maturities are all 30 years, have two parts: a fixed rate, now set by the Treasury at 0.10% for new issues and which lasts for the bond's life, and the inflation adjustment, which reflects the change in the Consumer Price Index over a six-month period. Since that inflation adjustment worked out to a negative 5.56% annualized rate for the September-to-March period, the fixed-rate portion of every I bond will be wiped out during its next six-month rate period. The Treasury announces the rates each May 1 and Nov. 1.
The silver lining is that rates can't fall below 0%, so I-bond holders won't lose their principal.
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