I Bond Investors: Act Now, Don't Delay

Oct. 12, 2019 7:02 PM ETTIP52 Comments
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Tipswatch
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Summary

  • I Bonds issued before November 1 will carry a permanent fixed rate of 0.50%, creating a real return higher than that of a 5-, 10- or 20-year TIPS.
  • The Treasury will reset this fixed rate on November 1, and it is very likely to go lower.
  • With interest rates sliding lower, this could be a "last chance" opportunity (for years?) to get a good fixed rate on an excellent inflation-protected investment.

Series I Savings BondsIt pains me to say this: The market's best inflation-protected investment could go "poof" on November 1. That's the date the U.S. Treasury will reset the fixed rate on its U.S. Series I Savings Bonds. And the news isn't likely to be good.

If you don't know what an I Bond is, here's a quick primer: It is a U.S. Treasury security that earns interest based the combination of a fixed rate and an inflation rate that accurately tracks official U.S. inflation.

  • The fixed rate will never change for each I Bond purchased. So if you bought an I Bond in 2014 with a fixed rate of 0.2%, it will continue to have a 0.2% fixed rate for the life of the bond. Purchases through October 31, 2019, have a fixed rate of 0.5%; on November 1, that rate will be reset.
  • The I Bond's inflation-adjusted rate changes each six months to reflect the running rate of inflation. That rate is currently set at 1.4% annualized. It will adjust to 2.0% on November 1 for all I Bonds, no matter when they were purchased. (Although the effective start date of the new interest rate can vary depending on the month you bought the I Bond, a Treasury oddity).
  • As of today, the I Bond's composite rate is 1.9%, a combination of the fixed rate (permanent) and inflation-adjusted rate (changing every six months).

Here is the important thing: The I Bond's fixed rate is far more important than the inflation-adjusted rate. It indicates the I Bond's "real return," meaning the amount an investor will earn above inflation. It is equivalent to the "real yield to maturity" of Treasury Inflation-Protected Securities.

I Bonds historically have had a fixed rate well below the real yield to maturity of 10-year TIPS, generally about 50

This article was written by

Tipswatch profile picture
2.61K Followers
I am no longer writing for this site. More details. I will continue to post updates at my site, TipsWatch.com.-----David Enna is a long-time journalist based in Charlotte, N.C. A past recipient of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website. The Tipswatch blog, which launched in April 2011, explores ideas, benefits and cautions about U.S. Series I Bonds and Treasury Inflation-Protected Securities, which David believes are an under-appreciated and under-used investments. David has been investing in TIPS and I Bonds since 1998.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. The investments he recommends can be purchased through the Treasury or other providers without fees, commissions or carrying charges.

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