Update on I-Bonds

I wrote a while back about diversifying your investments and suggested that US Savings Bonds, namely I-Bonds, might be one way to do that. At the time I noted that I-Bonds aren't necessarily in favor as the rates were dropping. Well, during the last rate setting period, it happened: the interest yield effectively dropped to zero.

I Bond rates adjust twice a year and are actually made up of two rates: a base rate and an inflation rate; the base rate never changes, but the inflation rate is indexed to inflation as measured by the Consumer Price Index. This time around, the base rate is 0.5% and the CPI is 0% - you can thank falling energy prices at the beginning of the year for that. The rates for I-Bonds will re-set in November and, if oil keeps rising, it's likely they'll go up again with the CPI.

There are a couple of key things to keep in mind about investing in I-Bonds, particularily at this juncture. First, you will only loose your principle (the money you invested) if the US Government defaults on its obligations - highly unlikely. Second, the income you do earn is state-tax free which can make the return on I-Bonds slightly higher than some other investments. Finally, again, US Savings bonds should be just one part, one branch, in your financial planning tree.

Still have more questions? Check out the Tresury Direct web site.