Rates on bonds may vary slightly

By Jeff Brown
Knight Ridder News Service

If you're fond of U.S. savings bonds and have some loose cash, should you invest now or wait until Monday, when the government will set new interest rates?

It's a semiannual dilemma, coming before new rates are announced every May 1 and Nov. 1 In the past, investors have sometimes locked in substantially higher rates by purchasing bonds prior to the adjustment.

But this fall, your timing probably will make little or no difference, according to Daniel Pederson, author of "Savings Bonds: When to Hold, when to Fold and Everything in Between."

Pederson said this week that he expects the inflation-indexed, or I bond, to continue paying the 3.39 percent rate set in May. So if you like I bonds, there's no need to rush out to buy today or tomorrow.

Rates on these bonds are figured by adding two figures: a fixed rate that stays the same for the 30-year life of the bond and a variable rate keyed to the consumer price index and adjusted every six months.

I bond rates are unlikely to change because the index has been very steady, Pederson says. Also, he expects the government to continue using the 1 percent fixed rate on the new bonds coming out Monday.

Rates on the EE Bond may climb slightly — to 3.2 or 3.3 percent, compared to the 2.84 percent since May 1, he says. It could, therefore, pay to wait until Monday or later to buy EEs. But the small benefit of waiting would be temporary.

EE rates are reset every six months to equal 90 percent of the rate paid on five-year U.S. Treasury notes. Come next May, all EEs will adjust to the same rate, regardless of whether they are bought today, Monday or later.

Which is best — I or EE?

"I give a slight advantage to the EE over the long term," Pederson says.

EEs have historically paid about 2 percentage points above the inflation rate. I bonds, with their fixed rate at 1 percent, pay only 1 percentage point above inflation.