A few years ago, we bought some Series I Savings Bonds when the interest rates were higher than they are today. With Series I bonds, your interest rate is based on a fixed rate, which is set when you purchase the bond, and an inflation rate, which is set twice a year based on inflation announced by the Bureau of Labor and Statistics. Twice a year, the interest rate of the bond changes and the bond matures in 30 years. This, along with TIPS, are the only two bonds that adjust for any reason after they are issued. The Treasury is going to add to that list a new floating-rate note (FRN) that will be reset weekly and based on the 13-week U.S. Treasury bill auction rate. Experts expect to see these notes available later this year or early next year.
Do they make sense for you? It’s really hard to say with so few details but based on the interest rates we see for the 13-week U.S. Treasury bills, I suspect not. We’re talking ~0.05% – not exactly an appealing return, you can get more from a savings account or a 24 month CD. Ally Bank has a Raise Your Rate 2-Year CD at 1.04% APY. Capital One 360 has a less appealing 0.40% APY, but even that crushes the 0.05% you’d get in this FRN.
That said, here’s what we do know about the Floating Rate Notes:
- They will have a 2 year maturity,
- Minimum investment is $100,
- The rate will be based on the 13-week U.S. Treasury bill auction and adjusts weekly (which is the frequency of the auctions).
Personally, I see this as something that might boost money market yields in a rising interest rate environment (those money market funds need to put that cash somewhere, they’re likely currently putting it in short term notes and rolling them over – this would simplify things) and that’s really the only impact the average person will see. You and I certainly won’t be buying these!
What do you think of the FRN?