New I-Bond Rate

by Doug on May.07, 2009, under Fixed Income

The I-bond rates, adjusted every May 1 and Nov 1, were released:

Fixed rate = 0.10%
Semiannual inflation rate = -2.78%

which gives a composite rate of -5.46%. Since I-bonds are guaranteed not to give negative returns, the interest rate from May 1,2009 to Nov 1, 2009 is 0.0%. In other words, nothing is earned. This anomaly is due to the fact that deflation occurred as measured by the consumer price index (CPI).

:I Bond, interest rate

2 Comments for this entry

Tim
July 16th, 2009 on 9:24 pm
Who invests in Bonds if can not earn anything??
admin
July 17th, 2009 on 7:08 am
Good question. This points out the weakness of investments tied to inflation. If there is deflation, as there was, the return will be at or near 0. Deflation in the U.S. is rare, though.

The calculation also affects people who already bought I-bonds though their fixed rate may be different.