Despite the fact that many companies are flush with cash and the borrowing problems other companies as well as individuals encounter are a consequence of credit and lending jitters, not money supply, Ben Bernanke continues to keep interest rates artificially near zero in order to benefit the large banks and other financial institutions which underwrite his patron. As a consequence, saving accounts and money market accounts have become indistinguishable from checking accounts.
Fortunately, if you are a saver, instead of being forced to accept Bernanke rates
there are inflation protected securities one can purchase directly online in increments as low as $25.00 and earning 4.6% as recently as May:
With most savings accounts offering measly yields, it’s news that the interest rate on I-bonds as of May 1 is 4.6%. I-bonds, unlike the more traditional EE savings bonds, are designed to provide a hedge against inflation. They combine two rates of interest: a fixed component, currently 0.0%, and an inflation component, currently 4.6%, which resets every six months.
You must hold an I-bond for 12 months before you can redeem it, and you lose the last three months’ interest if you cash in your bond before five years. But we don’t recommend you buy I-bonds for long-term savings now because that 0.0% fixed rate lasts for the life of the bond. However, says Ken Tumin, of DepositAccounts.com, which tracks bank rates, “I-bonds are a good short-term deal compared with CDs.” Say you purchase an I-bond in July and cash it in after 12 months. For the first six months, you are guaranteed to earn interest at a rate of 4.6%. Even in the unlikely event that the inflation-rate component resets in November to 0% and your bond earns no interest for the next six months — making an early-redemption penalty moot — you’ll still earn 2.3% over the 12 months. You bump up your yield a little by buying a bond at the end of the month because interest for the entire month accrues on the first of the month.
You can purchase infaltion protected securities directly online at
Update: Our good MI, below, is correct, and I am an idiot. I had initially picked up on the I-bond story from NPR and when I found the story neatly fleshed out for linking on Kiplinger, did not squint closely enough to see that it hailed from July, 2011, since the net yields quoted in both sources were on the order of 2.2-something per cent. My apologies if my mistake induced any now-unrealizeable sugarplum dreams.
H. M. Stuart