Yesterday I described how new I Bonds will be good deals for small short-term investments. This is compared to short-term CDs. Since we don't know future inflation rates, we can't really compare I Bonds to long-term CDs. With a zero fixed rate, it's hard to view new I Bonds to be good long-term investments. However, if you purchased I Bonds several years ago and you still have them, you are likely benefiting from high I Bond fixed rates. That makes the I Bonds much more attractive as long-term investments.
Thanks to the new I Bond inflation rate (4.60%), I Bonds will have six months of some nice yields. This is especially true for some old I Bonds like those issued in 2000 when the fixed rate was 3.60%. Those I Bonds will have six months of a composite rate of 8.28%. This Savings Bond Advisor post has a listing of the new composite rates for all I Bonds.
Keep in mind that the six months of this high composite rate will take effect based on the issue date of your I Bond. If you purchased the I Bond in May or November, this six month period has begun. If you purchased it in June or December, the six month period will begin in June. Here's a list of all the possible 6-month periods:
|I Bond Purchase||6 Month-Period of ~(Fixed Rate + 4.60%)|
|May or November||May 2011 through October 2011|
|June or December||June 2011 through November 2011|
|July or January||July 2011 through December 2011|
|August or February||August 2011 through January 2012|
|September or March||September 2011 through February 2012|
|October or April||October 2011 through March 2012|
Note, the new composite rate is a little more than the sum of the fixed rate and the inflation rate. The actual formula is a little more complex. From the Treasury Direct's website, the formula is:
Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
The third term (fixed rate x semiannual inflation rate) adds a small amount to the composite rate. For the fixed rate of 3.60% and the inflation rate of 4.60% (2.30% semiannual), this component adds 0.08%. So the composite rate is 8.28% rather than 8.20%.
I Bond Features
For more I Bond details, please refer to the bottom of my last Series I Savings Bond review.