I-Bond Rate for May 2009 – November 2009 Is 0%
I hope you have bought some I-bonds before May 1, so you can still enjoy a little bit the 5.64% yield I-bond rate that was good till April 30. If you missed the deadline and bought some bonds yesterday, May 1st, then too bad because the rate for Series I Savings Bonds issued between May and October will earn you nothing. That’s right, the total rate for I-bonds purchased for the next 6-month period is 0%, the Treasury Department announced yesterday.
The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 0.00% earnings rate for I bonds bought from May through October 2009 will apply for their first six months after issue. The earnings rate combines a 0.10% fixed rate of return with the -5.56% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). When the inflation rate is less than zero, a bond’s earnings rate is less than its fixed rate (but the earnings rate is never less than zero). The fixed rate applies for the 30-year life of I bonds purchased during this six-month period. The CPI-U decreased from 218.783 to 212.709 from September 2008 through March 2009, a six-month change of -2.78%.
The total rate of I-bonds is determined by a fixed rate plus a variable rate indexed to inflation. Even though the fixed rate is still positive at 0.10%, the -5.56% annualized variable rate brings the total rate down to zero (no negative rate though). This means that if you purchase any I-bonds in the next 6 months, you only buy the safety for your investments.
Well, it seems that one *good* thing the recession did for us so far is lower the inflation risk, but that’s not a good news for I-bond investors. Hopefully, the rate will go up when the next adjustment comes in November (I-bond rate is adjusted twice a year in May and November). If that’s case, then it also means the economic stimulus plan worked.
*Picture from WSJ
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