Is now the time to buy I or EE Savings Bonds? February 2012 Forecast
EE saving bonds offer a current rate of return of 0.6%. A new rate will be set in May based on (but substantially lower than) the 10 year treasury. The last time time rates were set in November, the 10 year Treasury was hovering around 2.01%. Currently the 10 year treasury is trading around 0.05% lower, so it would appear unlikely that the rate being offered would improve by waiting till May.
The EE Savings Bond is not a great short-term investment. However, it will yield 3.5% when held to maturity. We highly recommend it as a long-term investment, in which case the current rate is not relevant to your purchase.
I savings bonds current rate of return is 3.06% This is composed of a fixed component, currently at 0%, which is fixed for the life of the bond and a fluctuating rate, which base on the inflation rate. Both of these rates will be re-set in May. For the reasons mentioned above, the fixed rate is unlikely to change in May.
Inflation is based on CPI-U or the Urban Consumer Price Index. During the previous 6 month period ending (March thru September) , CPI-U had increased 1.53%, for an annualized rate of 3.06%. In the two monthly CPI-U releases since September, the rate of inflation has been negative. Potentially, the combined rate being offered on I Savings Bond could become 0% in November. Every 6 months, this rate will change.
Buying an I savings bonds now, will not prevent you from potentially earning 0.0% for six months. It will however, give you an interest rate of 3.06% for the next six months.
**Please note, that I Savings Bonds do not earn 3.5% interest when held to maturity.