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I Bond Interest Rates – Currently 6.73% (12/22/05)

© Kirk Lindstrom

I Bond Interest Rates - Currently 6.73% (12/22/05)

In our I Bond, iBonds, i-Bonds or Series I bonds Discussion Forum we've been talking about the latest Treasury Direct rates for I Bonds. I Bonds currently pay 6.73%. Here is more information from the press release:

November 1, 2005 I BOND EARNINGS RATE 6.73% The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which will apply for the life of the bond, and the inflation rate. The 6.73 percent earnings rate for I bonds bought from November 2005 through April 2006 will apply for the first six months after their issue. The earnings rate combines the 1.00 percent fixed rate of return with the 5.70 percent annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).

Read the full release here.

A Fully Guaranteed Fixed Income Portfolio

I recommend a "core and explore" approach to investing as explained here. Lets say you are retired and have 50% in a core and explore equity portfolio and half in fixed income like the 50:50 portfolio I discuss in Asset Allocation Review: Jan 2005. Below is a fully guaranteed fixed income portfolio suggestion that does well in periods of rising, falling and flat interest rates.

• 1/3rd in a GNMA fund like Vanguard's VFIIX. This will do well when rates are flat or falling.
• 1/3rd in Money Market Funds or CD ladders.
• 1/3rd in I Bonds (or TIPS for deferred accounts). These will do well when rates go up due to inflation.

What I like about that portfolio is you can rebalance it quarterly, or even once a year, to rebalance in a way that sells what is high to buy more of what is low to get back to the one third in each bucket after each reallocation.

When do rates adjust?

Here is my reply to an exchange on our Series I bonds Discussion Forum:

In response to No mention of I bonds posted by bamala:

So did anyone else notice that BB didn't mention I bonds in his last newsletter?

If you mean "Bob Brinker" then I'll simply say he has not had I Bonds in any of his three model portfolios (that mix equities and fixed income) ever. He does recommend GNMAs in his newsletter that he also talks about on the radio. GNMAs did well in the past but they have not done nearly as well as I bonds this year.