Home Upside Down World: I Bonds Pay A Higher Fixed Rate Than EE Bonds

# Upside Down World: I Bonds Pay A Higher Fixed Rate Than EE Bonds

Marc Prosser

Savings bonds are sold in two varieties, I bonds and EE bonds. EE bonds pay a fixed rate of interest until maturity (20 years after issue) and then are guaranteed to double in value. I Bonds pay a fluctuating rate of interest which is tied to inflation. Or, to be more precise, I Bonds have a fixed component which remains constant through the life of the bond and a floating component that tracks the Consumer Price Index (CPI-U).

On November 1st, 2013 the Treasury Department Announced the rates for newly purchased saving bonds. These rates are applicable for savings bonds purchased from November 1 st, 2013 through April 30th, 2014

 Fixed Interest Rate Component Inflation Interest Rate Component Total Annualized Interest Rate EE Bonds 0.1% ——————— 0.1% I Bonds 0.2% 1.18% (changes every six months) 1.38%

These rates are very unusual. (Historical Rate Table)  Never before has the fixed rate component of a newly issued I Bond been higher than the entire interest on a newly issued EE-bond. It almost defies logic.

## Why would a person buy an EE bond instead of an I Bond?

• The I Bond Pays A Higher Fixed Interest

• The I Bond Pays The Rate Of Inflation (which historically averages 2% per year)

I am convinced that I Bonds currently represent a much better buy than EE bonds but . .

There are two possible arguments that could be made for buying EE bonds instead of I Bonds. If inflation is negative, the I Bond could pay zero percent interest in subsequent 6 month periods of time after purchase. When CPI-U is negative, CPI-U is deducted from the fixed component to calculate the total interest rate for I Bonds, with a floor of zero percent. It’s a remote possibility that in the future, the total interest rate on I bonds could be 0.0%. For EE bonds to be the better buy, inflation would have to be negative for a decade if not longer.

The other argument is more plausible. When held until maturity (20 years), EE bonds pay an effective interest rate of around 3.5%. Thus, if you absolutely are sure that you will not need the funds for 20 years, you’re better off buying an EE bonds (assuming the average inflation rate is less than 3.3% during that period time).

## An Alternative To Savings Bonds – 5 Year CDs

If your time horizon is shorter than 20 years, CDs may be a better potential investment than either I or EE Saving bonds. If you got Learn Bond’s CD rates page, you can find several 5 year CDs that pay around 2% interest.

## Trusted & Regulated Stock & CFD Brokers

Rating

What we like

• 0% Fees on Stocks
• 5000+ Stocks, ETFs and other Markets
• Accepts Paypal Deposits

Min Deposit

\$200

Zero Commission on real stocks

67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Available Assets

• Total Number of Stocks & Shares5000+
• US Stocks
• German Stocks
• UK Stocks
• European
• ETF Stocks
• IPO
• Funds
• Bonds
• Options
• Futures
• CFDs
• Crypto

• FTSE 100 Zero Commission
• NASDAQ Zero Commission
• DAX Zero Commission
• Alphabet Zero Commission
• Tesla Zero Commission
• Apple Zero Commission
• Microsoft Zero Commission

Deposit Method

• Wire Transfer
• Credit Cards
• Bank Account
• Paypall
• Skrill
• Neteller

Rating

What we like

• Fractals Available
• Paypal Available

Min Deposit

\$0

\$1 to \$9 PCM

Investing in financial markets carries risk, you have the potential to lose your total investment.

Available Assets

• Total Number of Shares999
• US Stocks
• German Stocks
• UK Stocks
• European Stocks
• EFTs
• IPOs
• Funds
• Bonds
• Options
• Futures
• CFDs
• Crypto

• FTSE 100 \$1 - \$9 per month
• NASDAQ \$1 - \$9 per month
• DAX \$1 - \$9 per month
• Facebook \$1 - \$9 per month
• Alphabet \$1 - \$9 per month
• Telsa \$1 - \$9 per month
• Apple \$1 - \$9 per month
• Microsoft \$1 - \$9 per month

Deposit Method

• Wire Transfer
• Credit Cards
• Bank Account