I Bond Fixed Rate dropped to 1.00%
1st November 2005
From TreasuryDirect.gov
Series I, inflation-indexed savings bonds purchased from November 2005 through April 2006 will earn a 1.00 percent fixed rate of return above inflation. The 1.00 percent fixed rate applies for the 30-year life of I bonds purchased during this six-month period.
——-
Combined with the inflation component of the bonds (5.7%) this yields a very respectable 6.73% return for the next six months. In May, the inflation component will be adjusted again.
I have to say I am slightly disappointed. While the overall rate of return is quite good, the drop in the fixed portion of the interest rate makes these somewhat less appealing for long-term investment purposes (which I am looking to them for). Inflation (at least the number they use to represent it) is historically much lower so the return will likely not be this high in six months. As a short-term investment though they are still a good deal, although slightly less certain than the bonds I bought in October.
I plan to stick with my plan of investing in I Bonds at the end of each month in order to generate an income stream at some point in the future. Over time I expect the fixed rate to vary so this isn’t a huge setback just digging into my greed a bit… 
November 1st, 2005 at 10:04 pm
I too was dissappointed in the drop in the fixed rate, I am contemplated purchasing between 1-5k worth of ibonds, right now Im thinking only 1k and wait till the spring.
November 2nd, 2005 at 12:31 am
Why wait til Spring? If you’re going to purchase them at some point anyway my guess is that the inflation component will drop somewhat in six months and you’d come out ahead to buy now and get the very respectable 6.73% for the first six months (especially if you buy at the end of the month and collect the interest from your savings account too.) The .2% is only $2 per year in interest on a $1000 bond anyway.
November 3rd, 2005 at 2:09 pm
You make a good point Steve, I actually was considering waiting until the fixed rate is adjusted again, and dumping the money in a CD, but 6.73 is a really good return, so I still have a few weeks to make my decision.
November 3rd, 2005 at 2:47 pm
I am about 5 years from retirement so our plan is to begin buying Ibonds each month and slowly accruing a bunch of them to be held until retirement. Then we will begin to cash them in to help pay for medical insurance premiums.
I prefer munis however (AAA school bonds) , since we live in a high tax-state and I believe that before the dust settles we will see 6.73% on such munis. Then the strategy is to lock them in for 20 years and go fishin.
November 3rd, 2005 at 3:48 pm
Robin -
Congrats! I wish I was closer to being able to shift into that phase of my life.
Something to note: I Bonds are exempt from state and local taxes (and deferred for Federal tax purposes). Muni’s are typically federal tax exempt but not state and local unless you are buying them from your own state (recommend you talk to your tax advisor about this)
In the end it depends on where you’ll be from an income standpoint when you retire which is best for you. If you can find a Muni from your state paying a good rate I don’t see why it would be a bad thing to shift all or some of your cash to them. I have a feeling though that interest rates will be rising over the next few years. The timing will probably work out well for someone in your situation who is looking to lock in some income producing investments.
(of course I’m no expert - please consult an expert who is familiar with your situation before you jump in…)
November 30th, 2005 at 12:43 am
Just purchased a 1000 ibond today, I am planning on purchasing a 500 or 1000 ibond every six months from here on out as long as I have the funds, my wife and I are planning on having a child in the next year or so , so the funds may be tougher to come by, not sure what the savings is for yet, perhaps childs education, future re-investing or mid term savings, hopefully each bond will be kept for around 5 years, but if things stay fiscally strong for us, we may let the bonds mature much longer.