EE Savings bonds to become fixed rate on May 1

soupcxan

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EE savings bonds purchased after May 1 will have their interest rates fixed at the time of purchase, instead of floating at 90% of the average 5 year treasury rate. I read this as a strong signal that the treasury dept thinks rates will continue rising and they don't want to be stuck with the bill. Based on this, I'm thinking of buying some more EEs before the deadline.

http://www.publicdebt.treas.gov/com/comeefixedrate.htm
 
If you think rates will rise but inflation will remain tame, EE's are a good idea. If you think inflation will take off in tandem or worse than rates, then tips or ibonds or charlies CPI indexed bonds are a better idea.
 
I have a fair amount of I-bonds already...before today, my plan was to wait and see if they were going to raise the "fixed" portion of the I-bond rate on May 1...but I'd say odds of that are pretty slim at this point in time. So maybe I'll make one final hurrah for the EEs.
 
New EE rate - substantially higher? Otherwise, why bother?
 
My guess would be 90% of about 4.25, or about 3.8%. But it could continue to rise in the future and get bumped-up every 6 months.
 
My guess would be 90% of about 4.25, or about 3.8%. But it could continue to rise in the future and get bumped-up every 6 months.


In the future do you think the EE's will carry a higher interest rate than the I bonds?
 
I read that the new rate will be set "administratively" like the I Bond real rate rather than a decisive formula as is now done. Ie, lowest rate the market will still buy. I was thinking about adding some EEs in the not too far distant future, but think they are now off my list.
 
I agree with TH's assessment of things...I don't think that I'm capable of forecasting future rates nor future inflation, so I'll buy some I and some EE.
 
I don't think I can predict the future either. Probably the folks at Treasury are smarter than I am. THEY are betting that rates will rise but that inflation will remain relatively tame. They could have ditched the I bond but picked EEs.

rapoole
 
My thinking is also that since EEs will be less attractive in a rising rate environment after May 1, some of that demand will spill over into I bonds. With increased demand for I-bonds, the gov't has no incentive to increase the fixed portion of the I-bond yield (which is what I had been hoping for). But this is all just speculation.
 
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