Savings Bond Yields Nothing
It used to be that a savings bond was the safest thing to invest in with almost closer to a guaranteed increase in interest. Its hard when you put money earned into bonds only to find out that your return is a big fat 0%. For those that have invested in the I bond, this is what you might find.
It makes you wonder why it can even be called an investment. The I bonds were first offered back in 1998, and this is the first time in history when you actually can yield nothing in interest at some point during the possession of that bond.
So why is this happening? Take a look at what columnist Susan Tompor from Freep.com had to say.
Overall prices went down for consumers, not up. Remember gas at the pump is now a little more than $2 a gallon, not more than $4 a gallon.
The I Bond is using an annualized inflation rate of a negative 5.56%, as measured by the Consumer Price Index for all Urban Consumers. The inflation rate — or in this case the deflation rate — is added on top of the fixed rate of the I Bond.
When the inflation rate is less than zero, an I Bond can earn zero and earn less than that 30-year fixed rate of the bond. The earnings rate is never less than zero.
So should you dump the I bond is now the question? Well, Daniel Pederson of Michigan, and author of the book “Savings Bonds: When to Hold, When to Fold” says NO.
He goes on to state the reasoning behind it. I Bonds bought from Nov. 1, 2008 through April 30, 2009 have an annualized earnings rate of 5.64%. This rate is good 6 months after the issue date.
So even if you were to add the 0% return for the 6 months, the annual rate would still be 2.82% for bonds issued from last November through April 2009.
Now thats still not a bad return considering the economic situation, and the rates you might get for a savings account or a CD. And generally to get a decent rate on those you will have to put in a lot more money than you would on a bond.
So in conclusion, an I bond might not look so attractive in short, but in the overall view, it still provides you with a nice return if untouched. But the bottom line is that I Bonds are probably not going to be the greatest investment right now. You may want to wait til later in the year before purchasing them.