M is for Money

Update: May 2009 I Bond Rates Announced

The new rate for I Bonds has been announced, I bonds purchased between November 2008 and May 2009 will earn 5.64% (0.7% fixed plus semi-annual inflation rate of 2.46%). This puts annual inflation at 4.92%. The 0.7% fixed rate isn’t great (I have some from 2002 that have a 2% fixed rate), but it’s better than the previous 0%!

What are I Bonds?

For those of you unfamiliar with I bonds, they are inflation indexed savings bonds issued by the US government. The rate you earn on an I bond fluctuates every six months, depending on inflation. If inflation goes up, the rate you earn goes up, when inflation goes down, the rate is adjusted downward as well. You always earn the fixed rate at the time you purchased the bond (the current 0.7%) on top of inflation. They are guaranteed by the government, no worries about losing your money, and exempt from state and local income taxes.

A few other facts:
1) Purchase at face value
2) $5,000 paper and $5,000 electronic annual purchase limit per person
3) Cannot redeem for the first 12 months
4) If redeemed in the first 5 years, 3 month interest penalty

I have kicked myself a million times over for not buying more of these back in 2002 when the fixed rate was 2%. Bonds purchased back in 2000 when the fixed rate was 3.6% are currently earning 8.53%, I’d kill for that return right now. I will probably buy a few at the current rate, watching the damage done to my net worth has shown me I’m underweight in bonds. I bonds are a simple and fast way to protect yourself from the ravages inflation.

I Bond FAQ