Saturday, November 3, 2012

New Savings Bond Rates Announced

The I-Bond fixed rate was set at 0.0%.
The I-Bond composite rate is 1.76%.

As you can see, this is very close to my 0.0% fixed rate and 1.76% composite rate prediction made on October 16, 2012. Shocking!

In all seriousness, it's like shooting fish in a barrel. All it takes is a belief that the economy is still in crisis mode. Seriously. That's it.

The EE-Bond rate was set at 0.2%.
The EE-Bond original term was kept at 20 years.

This was below my prediction of 0.4% made on October 17, 2012. Be sure to check out my reasoning. It really does involve "crisis mode", and yes, we're apparently still well in it.

Here's the good news. The government did not change the original term (for new purchases). EE-Bonds held 20 years are still guaranteed to double in price. This means bonds bought today will effectively earn 3.53% per year if held the full 20 years. This compares very favorably to the current 2.51% yield on the 20-year treasury bond.

I'm not suggesting that EE-Bonds are a great investment. Only hindsight will show that. I can definitely say that there is at least one investment worse though (and perhaps even more than one if post-housing bubble Japan is any indicator).

I've already made my purchases for 2012. In January, I'll be a buyer of I-Bonds (for the 14th consecutive year) and quite possibly a reluctant buyer of EE-Bonds yet again (for the 4th consecutive year). This is not investment advice.

See Also:
Extreme EE Savings Bond Mispricing

Source Data:
Treasury Direct: I Savings Bonds Rates & Terms
Treasury Direct: EE/E Bonds Rates & Terms


Troy said...

The idea that the purchasing power of a dollar will still be 50c in 2032 is interesting.

The inflation calculator says this 2x devaluation occurred over the 1986 to 2011 period, 25 years.

If wages don't increase 2x, I still think the cost of living won't increase 2x.

2032 is when Gen X is eligible for Medicare, meaning the youngest boomers will be in their 70s already.

We can't inflate away the promised pensions they will be drawing. Gonna have to be actual wealth transfer from worker to retired.

But workers at least will get that money back as wages, hopefully. Seniors need people's labor, so maybe their money will stay in our economy longer.

Stagflationary Mark said...


I think there is a relatively good chance that EE Savings Bonds will outperform I Bonds over the next 20 years. That's assuming the Fed will and/or can stick to its 2% inflation target.

I certainly don't have any regrets yet about my previous EE Bond purchases.

That doesn't mean that I don't prefer the safety of I Bonds though.

As a side note, I'd love to know why Blogger marked your comment here as SPAM. You didn't even supply a link. I wonder if it is looking for words like "money" now.

Nick said...

Actually, judging from historical performance, I think the Series EE and the Series I are made to track each other over long periods of time. This chart of returns shows what I'm talking about. Incidentally, the if you compare against the broader stock market these bonds aren't so shabby!

Stagflationary Mark said...


For what it is worth, I think we'll start seeing some divergence between the EE and I bonds for two reasons.

1. The I-Bond fixed rate got stuck at 0%. It's therefore unable to go lower.

2. The EE-Bond should have had the original maturity lowered by now (to more closely match the 20-year nominal treausury). It still yields 3.53% if held 20 years.

That said, perhaps those two cancel each other out. Time will tell!