I Bond Interest Rates – Currently 6.73% (12/22/05)
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.
On 12/8/04 I added 30 $1,000 I bonds to the newsletter portfolio. Their base rate is 1.00% and they are currently paying 4.60% tax deferred until you cash out. They will adjust up to 6.73% in December 2005 and pay that for 6 months.
On 8/4/03 I added 30 $1,000 I Bonds to the newsletter portfolio. Their base rate is 1.10% and they are currently paying 4.70% tax deferred. They will adjust to 6.83% in Feb 2006 and pay that for six months. As my note above says, the fixed rate is constant for 6 months after you buy then is reset.
Tomorrow's WSJ has an article by David Wessel predicting that Bernanke will be cutting rates in 2006. The recent PPI is lower than expected. I suspect that there will be an increase on the fixed portion of Feb's I-bond rate. 1.5%
The new fixed rate will average out the CPI adjustments over six months so it will smooth out the ups and downs. You can ALWAYS sell I Bonds after you hold them for a year. The VERY worst case is you get 6.73% for six months and perhaps 1% for the next six months for an average of roughly 3.8%, about what money funds are paying now then pay a small penalty to sell. If the Fed lowers rates due to a sudden bout of deflation, then you will beat money funds and the penalty to sell will be very small since the rates for I bonds
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