Current I-Bonds Set For Steep Interest Rate Dive

[jeffrey]

It appears that I-Bonds are going to take a steep dive in the interest rate they're currently paying (6.73%) when the new May numbers are announced. This is because for the last 5 months, inflation has actually been in negative territory and the inflation rate makes up a good portion of what these bonds pay out. For February, the Bureau of Labor Statistics showed the Consumer Price Index for All Urban Consumers (CPI-U) increased just 0.2% with an overall CPI-U level of 198.7.




This means that those who purchased I-Bonds since November will likely see 6 months of rates below 2.5% (and possibly less than 1%) unless there is dramatic movement with inflation in the next month. This is because the I-Bond since November carries a fixed rate of only 1% which is added to whatever the inflation rate happens to be.

With the numbers announced, it makes little sense to purchase I-Bonds at this time. The only positive that may come out of this for those who like I-Bonds is a likely strong increase in the base percentage which could make the I-Bonds attractive in years to come. Either way, it will make little sense to purchase I-Bonds until October 2006 when the rates for November 2006 are announced. Depending on what these end up being and the base rate announced in May 2006, investors can either lock in rates for the May 2006 - October 2006 or choose those beginning in November, whichever seems to be better.

For more I-Bond information you can visit our sister site I-BondRate.com