About Tom Adams Expertise I can answer questions about US Savings Bonds - current value, current interest rates, how to get them redeemed, what to do if they are lost or stolen, how to buy them online, etc...
Experience Experience in the area I am the author of the best-selling book about Savings Bonds,
Savings Bond Advisor.
Expert: Tom Adams Date: 12/1/2007 Subject: Deflation
Question Tom, recently found this comment on another website:
". . . One fact which is not too well publicized is what can happen to "I" bond interest rates in a period of DEFLATION. If the CPI-U goes negative, (the rate of inflation is less than zero), the INFLATION RATE FACTOR will be SUBTRACTED from the FIXED INTEREST RATE portion of the rate. In this case, the combined new rate for the upcoming six month interest earnings period may actually BE LESS THAN THE FIXED INTEREST RATE established when the "I" bond was issued. In fact, if the DEFLATION rate is severe, the computed "I" bond interest rate could actually become a NEGATIVE number. So much for the FIXED INTEREST RATE remaining constant until the bond is redeemed."
What do you think? Thank you.
Stephen
Answer Hi Stephen - this is all correct. You can find the same info on my web site in the last section on this page:
In this respect I bonds are better than TIPS because with I bonds the total rate can't go below zero. With TIPS (the Treasury's big-boy version of I bonds) the rate can go below zero.
