Is the Series I bond's
"fixed rate" really fixed?
Regarding Series I savings bonds, is the "fixed rate" portion
really fixed or can it go down to 0 percent?
the economy tanks, and the U.S. finds itself in a serious deflationary period,
the "fixed rate" portion of Series I savings bonds can go down to 0 percent. The
U.S. hasn't seen that kind of deflation since The Great Depression of the early
1930s, and although anything can happen, the Diva doesn't expect a repeat performance
any time soon.
In a growing economy, inflation becomes more
of an issue -- prices go up and the value of a dollar goes down. By indexing interest
rates to the Consumer Price Index-Urban (CPI-U), Series I bonds are designed to
be a hedge against infla
Visit the Federal
Reserve Bank of Minneapolis Web site to track the U.S. annual inflation rates
from 1913 to the present. You'll see an economy that's experienced moderate, steady
growth since 1982. But the economy could change, and if you're worried about deflation,
allocate some investment dollars to long-term Treasury bonds as a hedge against
Though long-term Treasury bonds are better than Series I bonds
during a period of deflation, don't think I bonds are chopped liver. The I bond's
redemption value doesn't change, so even if its interest rate goes down to 0 percent,
you'll never actually lose purchasing power on it.
this point, go to The Federal Reserve Bank of Minneapolis' calculator "What
is a dollar worth" to compare the value of a dollar over two periods. It shows
that you'd only need 76 cents in 1933 to buy the same things that would have cost
$1 four years earlier, in 1929. The dollar bought more in 1933 because deflation
caused prices to fall.
For a list of I bond rates since its
inception, visit the U.
S. Treasury's savings bond Web site. You'll also find a blow-by-blow description
of how the rates are computed. Left-brained people will love it, but the Diva
warns right-brainers to be careful: it's an algebraic formula that could have
you clutching at your chest if you don't approach it with caution.
ROSEN has a master's degree in finance, with a specialization in accounting, from
the Kellogg Graduate School at Northwestern University in Evanston, Ill. Rosen
has more than 15 years of experience in the financial arena, serving in Illinois
and Florida as a certified public accountant, financial consultant, expert witness
and educator. She is owner of Dorothy Rosen, CPA, a public accounting firm that
serves individuals and small businesses.