Savings Bond Alert #019
Wednesday, April 19th, 2006
Categorized as: Savings Bond Alert emails
Next I bond inflation component 1.01%
The Consumer Price Index for March, released this morning, was 199.8. The inflation rate paid by Series I Savings Bonds is based on the difference between the March and September levels of the CPI. Expressed as an annual rate, the March number is 1.01% above September's level of 198.8.
This will create the second-lowest inflation component for I bonds since they were introduced in 1998. Only the 0.56% rate announced in May 2002 has been lower.
The current 6.73% I bond composite rate has caused investors to pour money into I bonds. Although they may be disappointed with their second-half earnings, their first-year yield will still be a very respectable 4.36%.
The low inflation component combined with continued upward movement in the market-based rate for TIPS, the Treasury's other inflation-protected security, should cause the Treasury to raise the fixed base-rate for I bonds issued after May 1 above its current historic low of 1.00%.
Meanwhile, investors who like inflation-protection and who have TreasuryDirect accounts have an opportunity to invest directly in new 5-year TIPS early next week. The Treasury's official announcement comes tomorrow, but the tentative announcement says orders have to be placed by Tuesday morning. Look on the www.savings-bond-advisor.com web site tomorrow for detailed information.
Some of the other stories on the Savings Bond Advisor web site in the last month include:
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Hi Tom,
So, since we now know that the next I bond inflation component is 1.01%, do you know what the I bond rate will become?
THANKS!
If the Treasury doesn't raise the fixed component in May, that means that I-Bonds will be paying a pitiful 2.01%. Bond buyers will jump ship by the thousands in favor of one-year bank CDs; 4.5% CDs are easy to find these days.
Darrell - The next I bond rate for your bond depends on when the bond was issued. You can use the table of I bond fixed rates on my page about I bond fixed rates to find out what fixed rates your I bonds pay.
Add your fixed rate to the inflation component and you'll basically have what your I bonds will pay during their next six-month rate period. The actual rate will be a bit higher because of an additional adjustment the Treasury makes.
If you're asking what the fixed rate will be on new I bonds issued from May through October, we won't know that until the Treasury makes its May 1 rate announcement.
Tom - don't forget that the 2.02%, like the 6.73%, is a six-month rate. While you're right that we can tell from the sales figures during the last six months that most I bond investors don't look past the rate for the first six months, the first-year yield on the 6.73% I bonds looks very good compared to other investments that were available last November, although not now.