What's Next for I Bonds?

Contributed by mm | March 6, 2006 1:20 AM PST

Back in November I bought $10,000 worth of I-series savings bonds at TreasuryDirect at the announcement of the dazzling 6.73% rate. I haven't made any follow-up purchase thereafter. According to Savings Bond Advisor, it is very likely that I-bond investors are heading toward a 6-month period of very low rate now CPI-U has been heading south since the last I-bond calibration in September.

From Savings Bond Advisor:

For January, the Consumer Price Index for All Urban Consumers (CPI-U) was 198.3, the Bureau of Labor Statistics announced today. In terms of an annual rate, this is down about 0.75% from the September 2005 level of 198.8.

The Series I bond inflation component is based on the difference between the March and September levels of the CPI-U. If the March index, which will be announced on April 19, is still under 198.8, the next I bond inflation component will be negative.

...

If the inflation component goes negative, it can wipe out an I bond's fixed rate. However, an I bond's composite rate can't go below zero, no matter how deeply the CPI-U dips. This gives I bonds an advantage over the Treasury's big-boy inflation security, TIPS, which do decline in value when the CPI-U change is negative.

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