Time To Consider I-Bonds

If you have a large amount of money sitting in an ING or Emigrant Bank Account which you won’t need for 14 to 15 months, you should seriously consider investing some of that money in Government I-Bonds. The Bureau of Labor Statistics released The Consumer Price Index (CPI) for September yesterday which rose 1.2%. This was the largest one-month increase in since 1980 with most of the blame being placed on a spike in oil prices as the result of Hurricanes Katrina and Rita.

The CPI rates are used to calculate what rate the the US Government I-Bonds will pay come November 1, 2005. The rates rose 2.85% semi-annually or at a 5.69% annual rate. This new rate (5.69% + fixed rate component) will replace the current I-Bond rate of 4.8%.

Currently the I-Bonds pay a fixed rate of 1.2% + the inflation rate. The fixed rate portion could also change, but should fall somewhere between 1.0% and 1.8%. This would mean that the I-Bond would pay a minimum of an incredible 6.69% and as much as 7.49% over a six month period beginning in November depending on what is decided for the final fixed rate portion.

I-Bonds can be purchased for as little as $25 with a maximum purchase of $60,000 in a one year period ($30,000 in TreasuryDirect and $30,000 in paper bonds). While the interest earning period is 30 years, you can redeem them after 1 year (with a 3 month interest penalty) or after 5 years with no penalty.

For those who have money sitting in online bank accounts earning between 3% and 4%, moving any money that you won’t need for 15 months would make sense. You can buy I-Bonds in either late October or late November (you’ll get full interest for the entire month no matter when you purchase them during the month, so you might as well leave them in the online bank until the end of the month).

If you buy this month, you’ll get 4.8% for 6 months and 6.69% for 6 months then leave the money in for another 3 months so you don’t lose the high 6.69+% rate on the 3 month penalty. If you buy in November, you’ll get 6 months at 6.69+% and whatever the new rate is renewed at 6 months from now. While both have some unknowns, either looks like a much better return than leaving it in your current online bank account.

You can find out more information about the I-Bond at the Treasury Department Website

This entry was posted in Investing, Personal Finance. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *