Sometimes it pays to procrastinate. Savers who never got around to buying series I inflation-adjusted savings bonds last winter may have thought they missed a great opportunity when the interest rate plunged from 6.73% to 2.41% on May 1. Not so, says Daniel Pederson, author of Savings Bonds: When to Hold, When to Fold and Everything In-Between.
The interest rate for I-bonds has two components, Pederson explains: a fixed rate that lasts for the 30-year life of the bond plus an inflation adjustment that changes semi-annually, in May and November. Bondholders earned 6.73% for the six months between November 2005 and May 1, 2006, but the bulk of that was due to the inflation component, which jumped because of last summer's run-up in oil prices. The fixed rate was just 1%.
Although the inflation factor for new bonds has plunged to 1.01%, the fixed-rate component has jumped to 1.4%. So, says Pederson, "you're guaranteed 0.4 percentage point more over the life of the bond."
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
For the past 15 years, inflation has averaged 2.7% annually -- which, added to a fixed component of 1.4%, would be equivalent to a 4.1% return on I-bonds. Series EE bonds, currently paying a fixed rate of 3.7%, would be a better deal only if you expected inflation to be lower than average.
-- Joan Goldwasser
-
Best Banks for High-Net-Worth Clients 2024wealth management These banks welcome customers who keep high balances in deposit and investment accounts, showering them with fee breaks and access to financial-planning services.
-
Stock Market Holidays in 2024: NYSE, NASDAQ and Wall Street HolidaysMarkets When are the stock market holidays? Here, we look at which days the NYSE, Nasdaq and bond markets are off in 2024.
-
Stock Market Trading Hours: What Time Is the Stock Market Open Today?Markets When does the market open? While the stock market does have regular hours, trading doesn't necessarily stop when the major exchanges close.
-
Bogleheads Stay the CourseBears and market volatility don’t scare these die-hard Vanguard investors.
-
The Current I-Bond Rate Until May Is Mildly Attractive. Here's Why.Investing for Income The current I-bond rate is active until November 2024 and presents an attractive value, if not as attractive as in the recent past.
-
What Are I-Bonds? Inflation Made Them Popular. What Now?savings bonds Inflation has made Series I savings bonds, known as I-bonds, enormously popular with risk-averse investors. So how do they work?
-
This New Sustainable ETF’s Pitch? Give Back Profits.investing Newday’s ETF partners with UNICEF and other groups.
-
As the Market Falls, New Retirees Need a Planretirement If you’re in the early stages of your retirement, you’re likely in a rough spot watching your portfolio shrink. We have some strategies to make the best of things.
