Savings bond rates jump, making them even more attractive

Inflation protection is the highlight of the day when it comes to U.S. Savings Bonds.

This morning, the Treasury Department announced the new rates for savings bonds issued from November 1st, 2008 through April 30th, 2009. With that announcement came a surprise to the 45 million Americans who own or continue to purchase this old but safe investment. In a time when spending is slowing and the Fed cut rates by 50 basis points only a couple of days ago, the I bond rate has jumped to 5.64% (up 0.8% from the previous six-month period), while the EE bond rate dropped to 1.30% (down a modest 0.1%).

Why did we see the I bond rate go up in market when we think rates should be dropping? Well, we have the inflation protection rule and rate of the I bond to thank. The earnings rate for the I bond is a combination of two rates: the fixed rate which holds for the life of a bond, and the variable rate, re-calculated based on inflation, every six months. Today, the Treasury Department must have been feeling a little more generous than they were in May, when they last rates were set, because they increased the fixed rate on I bonds from 0% (thats right, Zero!) up to 0.7%. Now, you may say that's not a big deal, but in the world of savings bonds, it really is. And here's why.

Did you know that no savings bond in the history of the program has ever lost any value? While it's still true, the same cannot be said for constantly earning interest. Because of the rates that were given to I bonds last May, any I bond issued between May 1st and October 31st, 2008 has the potential to earn zero percent. Of course, that's only if the inflation rate drops to nothing for a six month period as well, and that is not very likely. We can only speculate that the government's decision to bump up the fixed rate from zero up to 0.7% was because of the slightly negative public reaction to a bond having the potential to earn nothing.

Another announcement came today in the same press release from the Treasury Department that US Savings Bond investors everywhere should be alerted about Maturing Savings Bonds. If the government feels it's important enough to mention that you should know which of your bonds have stopped earning interest and need to be cashed in, then I'm very sure they won't mind me reminding you as well. Take a good close look at your bonds and find out if you're holding any of the following matured savings bond categories:

  • E Bonds issued May 1941 thru November 1978
  • All U.S. Savings Notes (Freedom Shares), which were issued from May 1967 through October 1970
  • in the coming six months Series E Bonds with issue dates from December 1978 through April 1979

All totalled there are more than $16 Billion in matured US Savings Bonds still outstanding that have stopped earning interest and need to be cashed in. Be sure you're making the most of your money, because a matured bond, taking inflation into consideration, is losing you money earing zero percent.

Jack Quinn is a personal finance writer and editor for His first experience with savings bonds was having his picture taken while sitting on a bomb in Times Square as a child with Hollywood celebrities, promoting the Savings Bond program. He has been a guest host on financial radio and television shows and a featured writer in various personal finance magazines and newspapers. Jack has helped Savings Bond owners better understand their investments for more than 15 years.

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