Thursday, October 20, 2011

EE Savings Bond Rate Prediction for November 1, 2011

This is an update to last year's post. Read it for more details. The theory is the same. Only the interest rates have changed.

Based on today's 2.2% 10-year treasury yield and a belief that we are now in permanent crisis mode, I'm predicting that the EE savings bond rate set on November 1, 2011 (fixed for the life of the bond) will be 0.3%. That's down from the current rate of 1.1%.

If you are thinking about buying EE savings bonds this year then you might consider buying them before November 1, 2011.

Keep in mind that if you hold them 20 years, they are guaranteed to double in value. That brings the long-term yield up to 3.53% (2^(1/20)=1.0353).

I want to thank Anonymous for asking my thoughts on this in the comments. This is the best part about having a blog. I bought EE savings bonds last year but hadn't considered buying them this year. I didn't realize that the rate had popped back up to 1.1%.

Today's 1.1% rate beats my online savings account and the long-term yield beats comparable 20 year nominal treasuries by a wide margin (3.53% vs. 2.92%).

I'm a reluctant buyer, just like I was last year. I will repeat what I said then.

For what it is worth, I'm a buyer this week. I do not expect to hold it the full 20 years but I'd like to have the option. In the meantime, I'll be earning a better rate than my online savings account.

I still own last year's EE savings bonds. No complaints so far.

As a side note, if the new rate is as low as I predict it will be, then the government will be indirectly confirming that we are still in crisis mode. Actions speak louder than words.


The government doesn't just set the interest rate. It also has the power to change the time it takes for a given EE savings bond to double in price. Since interest rates have fallen substantially, the odds of a duration change (for new purchases) are increasing substantially.

It would not surprise me to see the original term increase to 22-25 years at some point (perhaps very soon).

Click to enlarge.

Source Data:
Treasury Direct: EE/E Bonds Rates & Terms
U.S. Treasury: Interest Rates

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