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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8 Responses to “I-Bond Rate for May 2009 – November 2009 Is 0%”

  1. cs |  May 02, 2009 at 4:35 pm

    From Savings Bond Advisor:

    “The inflation component for I bonds for the next six-month rate period is -5.56%, which will wipe out the fixed base-rate on all issues of I bonds, including newly issued I bonds…

    All I bonds, including new ones, will have an interest rate of 0% during their next six-month rate period…”

  2. nickel |  May 02, 2009 at 6:00 pm

    So… What’s the point? Why buy?

  3. Sun |  May 02, 2009 at 9:43 pm

    @cs If an I-bond issued before has a fixed rate that’s higher than 5.56%, then that bond can still earn some interests for the next six months. But I doubt such a bond exists. So basically, yes, all existing I-bonds will earn no interest from May to November.

    @nickel No, there’s no reason to invest in something that earns you no interest at all, unless you only care the safety of the principal.

  4. nickel |  May 02, 2009 at 9:44 pm

    Yeah, but I can get safety plus a non-zero return at the bank. :)

  5. Sun |  May 02, 2009 at 10:04 pm

    Haha, I am still loving that 2.0% return from a bank than nothing from the government. But there may be people still think banks aren’t safe because they can fail (and they did). Between hiding the money under their mattresses, which only earns them nothing, and lending the money to the government interest free, they may be choose the latter because it’s safer :D