Comments on: I bond investments plummet in May

by: Ken

Sat, 08 Jul 2006 18:28:54 +0000

Hopefully, with this low demand for I-Bonds, the Treasury will raise the fix rate again in November. I think it's time for them to get it back to at least 2%. I'm a little worried that inflation will spike again and the Treasury will again keep the fix rate low to compensate.

Back in late 2001 and most of 2002, the I bond fix rate was 2% while the fed funds rate was only around 2%. Now the fed funds rate is 5.25% while the I bond fix rate is only 1.4%.

by: Tom Adams

Fri, 07 Jul 2006 22:36:48 +0000

LM - I don't see how Savings Bonds would work for you anyhow, since you can't redeem a Savings Bond investment until after it's a year old.

Wouldn't you have to spend all the money you borrow with a school loan during that first year? I think a bank savings account is your best bet.

by: LM

Fri, 07 Jul 2006 21:33:14 +0000

I'm looking for a short term investment on a school loan that will allow me to get access to the $ without much of a consequence. The previous high rate of the I bonds - 6%+ seemed to be a good option - but it seems they have plummeted. It does not seem to be such a great investment anymore for short term purposes. Perhaps the high yield savings account is a better choice in this case. Any thoughts?

by: Tom Adams

Thu, 22 Jun 2006 06:23:33 +0000

You've got it right. To get the 1.4% base rate, you have to accept six months of the low inflation component, even if you wait until October to invest.

by: Chris

Wed, 21 Jun 2006 17:18:12 +0000

I think I'd like to retract my previous post

It just hit me that due to the way the rate periods work, if someone were to wait until October to purchase I-bonds (like I suggested above) then they still have 6 months of the current, lower rate, though just delayed (due the newer rate not taking effect until the next rate period).

So I guess that means it's not possible to avoid 6 months of the lower rate in the grand scheme of things for someone who makes regular I-bond contributions.

Please let me know if I've got this wrong.

by: Chris

Wed, 21 Jun 2006 16:43:50 +0000

I fully understand that "May's I bonds" are better for the long term due to their higher fixed base-rate, but why buy I-bonds right now with the paltry 2.41% composite rate?

Why not temporarily put the money in a high yield online savings account (e.g. HSBC, Emigrant), earn close to 5%, then pull out of the savings account in mid-October and snap up your I-Bonds then to "lock-in" the nice 1.4% base rate? Seems to me this is the "rational" choice. Why pass up ~2.5% between now and then?

Perhaps I'm missing something?

Would this also not explain, at least part of the plummet, i.e. those holding out until the end of the 6-month period before buying in?