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I-Bonds Fixed Rate for May 1, 2007

May 1, 2007 by TFB

The Treasury Department announced today the new fixed rate for I-Bonds sold between May 1, 2007 and October 31, 2007. I previously guessed that the fixed rate would remain unchanged at 1.4% and I thought any change would be on the down side. Someone on the old Vanguard Diehards forum guessed it would go up to 1.8%. And alas, we were all too optimistic. The Treasury Department reduced the fixed rate on I-Bonds to 1.3%. The composite rate, including the inflation adjustment, will be 3.74% for I-Bonds sold in the next 6 months. Neither the 1.3% fixed rate nor the 3.74% composite rate is attractive relative to alternatives such as TIPS, T-Bills, money market funds or bank savings accounts. Goodbye, I-Bonds, don’t call me until your fixed rate reaches 2.0%.

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5 Responses to “I-Bonds Fixed Rate for May 1, 2007”

  1. I guess Uncle Sam prefers to get its loans from China rather than we regular US folks who (used to) uy I-bonds. :-)

  2. You probably have this, but here’s the link of the fixed rates since I-bonds started.

    http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

    Ahh the days of 3% fixed rates. Sigh.

  3. indexfundfan on May 1st, 2007 at 4:06 pm

    I got rid of the last EE bond some time last year. Still holding some I bonds though.

    indexfundfan @ indextown

  4. I’ll redeem my EE bonds over the next few months as they reach the 5-year penalty-free holding period. I’ll probably do the same for my 1.6% I bonds. Keeping 2.0% and 3.0% I bonds for now.

  5. In early 2001, I purchased $5K of I-bonds with a rate of 3.4%+CPI. In retrospect, I really regret not purchasing a lot more. I remember browsing through Ibbotson at the time and finding that over time short term bills returned about the inflation rate and long term treasuries returned about 2% over inflation (if I am remembering the stats correctly).

    I could not understand why I-bonds (and also TIPS at the time) were well over 3% + CPI. (At one time, I believe TIPS were over 4%.) And as you are aware, I-bonds essentially have an embedded put in them and also allow you to defer taxes on the interest, which is a rare thing with any sort of fixed income security. At the time, it looked like a steal, but I kept thinking there must be something I don’t understand, so I only put one toe in the water.

    (Reminds one of a bad joke: Two economists are walking down the street. One sees a $50 bill on the sidewalk. The other remarks that since markets are efficient, if it really were a $50 bill, someone would have picked it up long ago. So they walk on without picking it up…)

    Alas, I fear the days of 3% and 4% TIPS and I-bonds may be gone forever…

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