With the stock market fluctuation to great highs and lows, the feds fiddling with the interest rates and gas prices having more moves than a Duncan Yo-Yo, it is hard to gauge yous financial future. It is also challenging to see how your current investments compare to the market like how Savings Bonds Rates Compare to Inflation.
Savings Bonds Rates vs. Inflation comparison depends on what type of Savings Bond you are holding onto. The most current Savings Bond Series is the I Bond and according to TreasuryDirect “While you own them they earn interest and protect you from inflation.” This is because they are a low risk, guaranteed return liquid investment.
The rate of return for this bond is currently 5.64% through April 30, 2009. This rate is adjusted semiannually based on the current federal interest rate. When comparing Savings Bonds Rates vs. Inflation it is important to know how the I Bonds rate is calculated. They have an annual interest rate combined from a fixed rate and a semiannual inflation rate and the rate compounds over time.
The US Treasury offers additional products to help account for inflation and how well Savings Bonds Rates compare to Inflation may make you consider investing in a Treasury Inflation Protection Securities (TIPS) instead.
TIPS are inflation-indexed bonds issued by the U.S. Treasury and were first issued in 1997. The Consumer Price Index is the tool commonly used measure of inflation, and the principal of TIPS is adjusted towards the CPI. TIPS are offered in 5, 10 and 20 maturity time lengths and may fare better than Savings Bonds Rates vs. Inflation.
If you are interested in comparing TIPS vs. Savings Bonds Rates vs. Inflation the Fisher equation (equation that shows relationship between nominal and real interest rates under inflation) is the calculation to use.