I wrote yesterday about how the lowly Series EE Savings Bond is actually a pretty attractive investment in today’s interest-rate environment, if held for 20 years. I didn’t expect many people to agree with me. So far, everyone seems to be much more interested in the new I Bond with a fixed rate of 0.1%. That’s OK, I am buying that I Bond, too.
But there’s a real possibility that the EE Bond will outperform the I Bond over the next 20 years, because if you pair off the two investments, the I Bond gets an inflation-breakeven rate of 3.4%. It will under-perform against the EE if inflation averages less than 3.4%.
I created this chart to show how an EE Bond will perform against other very safe investments, in different inflation environments:
The blue area shows that the EE Bond outperforms all the other options up to average inflation of 2.5%. At that point and above, the 20-year TIPS outperforms all the other investments. The EE Bond outperforms the I Bond up to an inflation rate of 3.0%, and just barely under-performs at 3.5%.
The 20-year Treasury is the big loser in this chart. It under-performs at all inflation rates. The I Bond is never a big loser or a big winner; it can’t outperform a 20-year TIPS yielding 0.92%, but it does offer tax advantages and a flexible maturity.