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New I Bond Rates - Government Gives No Incentives to Buy


I was hoping that the Treasury would give responsible savers a little bit of good news by issuing a respectable fixed rate on the Series I Savings Bonds today. No luck. The new fixed rate is a pathetic 0.10%. The inflation component is now -5.56% which was already known on April 15th. This results in a new composite rate of zero percent. The composite rate is typically the sum of the fixed rate and the inflation component, but since the composite rate can't go below zero, it's just zero percent.

Unfortunately, all previouslly issued I Bonds will also be zero percent for 6 months. Refer to my previous post to see when your I Bond will start the 6-month period of 0% interest. The old I Bonds with high fixed rates are still good deals even with this 6-month period. When inflation returns, the rates will look much better.

For more information on I Bonds, refer to my April post, and for the official information, refer to the Treasury Direct website.

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Anonymous   |     |   Comment #1
You're the eternal optimist, Banking Guy! The Government has absolutely no interest in assisting people who save. It's all about spending, baby.
Still, keep up the good work. Signed, A Loyal Reader.
Anonymous   |     |   Comment #2
I used to be a pollster for inflation measures index. What this inflation or deflation number are showing is, is how the whole system is rigged.
The items included in the inflation are not everyday regular purchases nor is energy nor is the food.
I will give you an example of what is counted:

Resorts room and board, skis, boogie boards, wind breakers clothes, certain novelties and certain electronics and some bank loans. Those are the categories that FEDs are counting as inflation bench marks.

On down economy those categories always go down, since there is less need for them. And that is how the negative inflation shows up. It has nothing to do with real inflation on the main street level.

We are all fooled into believing the inflation is non existent for a simple reason: When FEDs are borrowing or printing money, they want to sell them as low paying bonds on the open market for a long term deals. When that process is finished, the rates will jump to nullify the previously issued low interest paying bonds and the whole process start all over again.

It is a game of cat and mouse the FEDs are playing with the public.
Guess who is being fool all the times.
Anonymous   |     |   Comment #3
I agree with your assessment of the phony inflation statistics that the Fed uses. However, we the general public, are not fooled by them. It's just that we have no recourse. The Feds control the game. They claim they don't include food and energy in their inflation equation because it they are too vol ital. Well why not use an average of say the trailing last twelve months of food and energy prices when ever they re figure their inflation numbers?

We are not fools, it's just that the Fed is fooling themselves to make the figures look good for political and budgetary reasons.
Anonymous   |     |   Comment #4
The EE bond at 0.7%, also, gives no incentive to buy.
Anonymous   |     |   Comment #5
I also agree with the previous post on phony inflation numbers.
However, we are being controlled by the FEDs on how we save and where we should put our money. Their FOMC meetings and statements are misleading and childish. The authority of the FED is lost in our eyes by making us look like fools or uneducated herds by presenting us with lies and unreal numbers. What to do about it? I, just ignore them and never react upon their statements of lies.
Anonymous   |     |   Comment #6
I, also noticed a pattern of the FEDs. When prices go up, they say it is a fluke or temporary thing.
When even a minute price of something goes down, they reported it as a trend and permanent thing and amplified it 10 fold.
Since, credibility is what was setting the interest rates, lack of it, makes FOMC or the Feds, irrelevant for day to day or short term interest rates trend setters.

I, stop trusting them since Ben Bernanke came on.
Anonymous   |     |   Comment #7
Looking at the Feds numbers, it looks like we have to pay them back interest for keeping our money.
Anonymous   |     |   Comment #8
To the previous post:
We are actually paying with our money, by not earning real interest rates.
Anonymous   |     |   Comment #9
If you had several trillion dollars to lend and could set the interest rate at 0%, wouldn't you do it? It is the ONLY way the govt can afford to borrow all the trillion's of dollars they are now spending!!!
Anonymous   |     |   Comment #10
It looks like a Ponzy scheme to me.
Anonymous   |     |   Comment #11
Quote: "If you had several trillion dollars to lend and could set the interest rate at 0%, wouldn't you do it? It is the ONLY way the govt can afford to borrow all the trillion's of dollars they are now spending!!!"

I believe you nailed it.
Anonymous   |     |   Comment #12
"If you had several trillion dollars to lend and could set the interest rate at 0%, wouldn't you do it? It is the ONLY way the govt can afford to borrow all the trillion's of dollars they are now spending!!!"

That makes absolutely no sense.
If I had $1 or $1 trillion to lend, I would try to get as much interest as I possibly could for it. That's the reason I read this blog -- I am trying to get as much interest as I can for the money that I am lending.

Maybe you meant if I had to BORROW $1 trillion I would like the interest to be 0%. That I would agree with.

But if you are making the claim that the Federal Reserve is just printing money to lend to the Treasury, then it doesn't matter what the interest rate is since all profits from the Federal Reserve are just returned to the Treasury.
Anonymous   |     |   Comment #13
the biggest idiot(s) in this game is the person (people) who lend their money at these ridiculously low rates (i.e. 3%, 2%, 0%).

I still say the biggest fool is the Lender who accepts these pathetic insulting rates.
Anonymous   |     |   Comment #14
To anonymous who posted:
"I still say the biggest fool is the Lender who accepts these pathetic insulting rates."

And your alternative to a FDIC or NCUA insured, risk free investment with a higher rate of return is?
Anonymous   |     |   Comment #15
No, i never said I had an alternative to safe investments.

What I suggest to everyone loaning their money out at these OBSCENE rates is to STOP!! if consumers stop giving their money to these crooked institutions who are offering such insane rates, then maybe, just maybe we can expect to see them raise rates in the future. Right now, there is absolutely no incentive for them to raise savings rates especially when the deranged public keeps giving them their money at absolutely ridiculous rates.
Anonymous   |     |   Comment #16
I suppose I just cannot resist posting some comments related to the I/EE bonds. The "first hint" that the clouds ahead might possibly be dark occured a year or two ago. After years of investors being able to purchase up to 30K in physical I/EE bonds ("at a bank") plus an equal annual amount in elecronic form...suddenly the gov't changed the rules to reduce the max-combined annual amount to a mere fraction of the former limits. WHY? This was at a time when the inflation rate (even the "phony" rates the gov't became forced to admit with $150 /bbl oil scared the gov't into (again?) not wanting to give the small investor a chance.

Let's face it...even at a 60K/year limit along with increased limits as to penalties when bonds were not held for longer timer periods...I/EE bonds have never really been a target of *BIG* investors...after all the CAPS are too low.

So, we began hearing the gov't "market" savings bonds with a touch of "be patriotic"...during the 2003-2006+) tie frame. RIGHT-NOT!

It's my opinion that the recent rates for I bonds are not "leaders"...rather the are followers....Think about it...if the FED can sell treasuy bills @ near zero, why pay bond holders a higher rate?

As an aside....as a CNBC watcher...I have not heard ONE word on the -5.5% inflation component! No surprise...think about it.

Generally, I've done well with EE/I bonds (more to I-bonds)...still the gov't is clearly sending the signal that since they are "lending" $ to banks @ virtually zero rates, no sense giving the small guy a break!

Still...no one promised us a fair deal...and we see the evidence today. Huge amounts of $$ are sitting on the sidelines with the gov't hoping it will move into the equity markets.
Anonymous   |     |   Comment #17
Lets face it, the FEDs are trashing our cash. They want almost free money to finance the ambitions of the politicians. We will pay for program never ask for it or needed.
And once the Government start a program, it turns into a baseless pit.
Anonymous   |     |   Comment #18
personally, i'm sick and tired of all the PR firms BS that is regurgitated on a nightly basis on almost every news channel. it's sickening to hear the brainless banter back and forth about how everything is bad and everything is good and how people should do this or do that with thier money. They lie and cheat the public with this misinformation. And you know why they are now giving you "0" on your I-bonds???? BECAUSE THEY CAN! No one is going to do anything about it. In fact, you'll probably have a decent portion of the brainless population actually buy I-bonds at "0" percent. Why not??? As the old tired cliche' goes: it's better than putting it under your mattress.
Anonymous   |     |   Comment #19

I got $5000 paper bonds thru my bank when you first posted this deal last year. Is it better for me to cash the I bond at my bank than leaving it?

I got it the last day when the composite was 1.2%
Banking Guy
Banking Guy   |     |   Comment #20
Refer to previous post for a discussion about the best time to redeem I Bonds. One thing to consider is that a fixed rate of 1.2% is not too bad (much better than it has been), and it could provide some inflation protection for the long term.