Let's take a look and see if they're right. The following figure shows the results of investing an equal amount each month in both Series I Savings Bonds and the Vanguard 500 Index fund.

The graph begins when Series I Savings Bonds were introduced in September 1998 and has been updated through October 1, 2008.

The thin, black line shows how much money has been invested. It goes up very steadily because an equal amount of money is added each month. This month, it's at 122. In other words, the total amount invested is whatever equal monthly investment you choose times 122.

The upper blue line is the total value of the Series I Savings Bond investment. Note that this line always goes up. This month it's 160.83 times the monthly investment.

The red line that goes both up and down is the total value of the stock market investment, including reinvested dividends. This month it's at 127.66 times the monthly investment, down sharply from last month's 139.62. Because of the ongoing financial crisis and recession, the I bond investment is once again ahead of the stock market investment.

And if you had been forced to cash in the stock investment between 2001 and 2003, you wouldn't even have gotten back what you put in.

However, no matter what this graph says, don't buy Savings Bonds expecting to outperform stocks.

Buy Savings Bonds because you can't get back less than you put in. They make a great foundational choice for the low-risk portion of your investment portfolio.

That said, it's clear that people who tell you that a stock investment always outperforms an investment in Savings Bonds don't know what they're talking about.

The Series I bond inflation component is based on the difference between the March and September levels of the CPI-U. The March level of 213.528 will be the base for the next rate announcement. If inflation for all six months of the period matches the rate during the first five months, the next I bond inflation component would be 6.25%. For the last six months, January through July, the rate, expressed annually, is 6.98%.

For TIPS, the outstanding principle is adjusted up or down, using a daily index, to compensate for inflation. Today's inflation announcement will be applied to TIPS next month. Expressed as an annual rate, next month's TIPS inflation adjustment will be -4.79%.

The red line on the following graph shows the level of the CPI-U for each month since Series I bonds were introduced.

The blue lines in the graph are each six-months long and begin on their left end in March or September and end on their right end the following September or March.

The up-and-down space between the blue lines represents the change in the CPI-U during the six-month period.

The percentages on the graph indicate the change, expressed as an annual rate, for each six-month period. These are the same percentages the Treasury uses to calculate composite Series I bond interest rates for these periods.

Since I bonds were introduced in 1998 the I bond inflation component has never gone negative, but it has come close. If the inflation component goes negative, it can wipe out an I bond's fixed rate. However, an I bond's composite rate can't go below zero, no matter how deeply the CPI-U dips. This gives I bonds an advantage over the Treasury's big-boy inflation security, TIPS, which do decline in value when the CPI-U change is negative.

It's clear from the questions I receive that many I bond investors don't understand that the rates earned by their I bonds change every six months based on the inflation rate.

For the curious, here's complete information on how I bond interest rates are determined.

The CPI-U uses the price levels of 1982-1984 as its base of 100.

In addition, the Treasury will allow those in impacted areas to redeem savings bonds that are less than 12 months old, which isn't normally allowed. However, the three-month interest penalty for redeeming before five years still applies.

Those who have lost bonds should complete Public Debt Form 1048, Claim for lost, stolen, or destroyed United States Savings Bonds. Bond owners should write the word DISASTER on the front of their envelopes to help expedite the processing of claims.

Open Programs

• Hurricane Ike - available through the end of November 2008 in:
  • Florida: Baker, Brevard, Collier, Duval, Glades, Hendry, Jefferson, Lake, Lee, Leon, Marion, Nassau, Okeechobee, Orange, Polk, Seminole, St. Lucie, Volusia, and Wakulla counties
  • Louisiana: Acadia, Beauregard, Calcasieu, Cameron , Iberia , Jefferson Davis, Sabine, St. Mary, Vermilion, and Vernon parishes
  • Texas: Angelina, Austin, Brazoria, Chambers, Cherokee, Fort Bend, Galveston, Grimes, Hardin, Harris, Houston, Jasper, Jefferson, Liberty, Madison, Matagorda, Montgomery, Nacogdoches, Newton, Orange, Polk, Sabine, San Augustine, San Jacinto, Trinity, Tyler, Walker, Waller, and Washington counties

• Hurricane Gustav - available through the end of October 2008 in:
  • Louisiana: Acadia, Allen, Ascension, Assumption, Avoyelles, Beauregard, Cameron, East Baton Rouge, East Feliciana, Evangeline, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Orleans, Plaquemines, Pointe Coupee, Rapides, Sabine, St. Bernard, St. Charles, St. James, St. John the Baptist, St. Landry, St. Martin, St. Mary, Terrebonne, Vermilion, Vernon, West Baton Rouge, and West Feliciana parishes

Closed Programs

These programs were opened in 2008:

• Four State Severe Weather and Flooding - available through the end of July 2008 in:
  • Illinois: Adams, Calhoun, Clark, Coles, Crawford, Cumberland, Douglas, Edgar, Hancock, Henderson, Knox, Jasper, Jersey, Lake, Lawrence, Madison, Mercer, Monroe, Pike, Randolph, Rock Island, St. Clair, Whiteside, and Winnebago counties
  • Missouri: Andrew, Atchison, Buchanan, Cape Girardeau, Clark, Holt, Jefferson, Lewis, Lincoln, Marion, Mississippi, New Madrid, Nodaway, Pemiscot, Perry, Pike, Platte, Ralls, St. Charles, St. Louis, Ste. Genevieve, and Scott counties and the Independent City of St. Louis
  • Nebraska: Buffalo, Butler, Colfax, Dawson, Douglas, Gage, Hamilton, Jefferson, Kearney, Platte, Richardson, Sarpy, and Saunders counties
  • West Virginia: Barbour, Doddridge, Gilmer, Harrison, Jackson, Jefferson, Marion, Taylor, and Tyler counties

• Three State Severe Weather and Flooding - available through the end of July 2008 in:
  • Indiana: Adams, Bartholomew, Benton, Boone, Brown, Carroll, Clay, Daviess, Dearborn, Decatur, Elkhart, Franklin, Fulton, Greene, Hamilton, Hancock, Henry, Huntington, Jackson, Jefferson, Jennings, Johnson, Knox, Lagrange, Lawrence, Madison, Marion, Miami, Monroe, Morgan, Newton, Ohio, Owen, Parke, Putnam, Randolph, Ripley, Rush, Shelby, Sullivan, Tippecanoe, Union, Wabash, Warrick, Wayne, White, Vermillion, and Vigo counties
  • Iowa: Adair, Adams, Allamakee, Appanoose, Audubon, Benton, Black Hawk, Boone, Bremer, Buchanan, Butler, Carroll, Cass, Cedar, Cerro Gordo, Chickasaw, Clarke, Clayton, Crawford, Clinton, Dallas, Delaware, Dubuque, Davis, Decatur, Des Moines, Fayette, Floyd, Franklin, Fremont, Greene, Grundy, Guthrie, Hamilton, Hancock, Hardin, Harrison, Howard, Humboldt, Henry, Iowa, Jackson, Jasper, Johnson, Jones, Jefferson, Keokuk, Kossuth, Lee, Linn, Louisa, Lucas, Marion, Marshall, Mitchell, Monona, Montgomery, Muscatine, Mahaska, Madison, Mills, Monroe, Page, Polk, Pottawattamie, Poweshiek, Ringgold, Scott, Story, Shelby, Tama, Taylor, Union, Van Buren, Wapello, Warren, Webster, Winneshiek, Worth, Wright, Washington, Wayne, and Winnebago counties
  • Wisconsin: Adams, Calumet, Columbia, Crawford, Dane, Dodge, Fond du Lac, Grant, Green, Green Lake, Iowa, Jefferson, Juneau, Kenosha, Lafayette, LaCrosse, Marquette, Milwaukee, Monroe, Ozaukee, Racine, Richland, Rock, Sauk, Sheboygan, Vernon, Walworth, Washington, Waukesha, and Winnebago counties

• Seven State Severe Weather - available through the end of July 2008 in:
  • Arkansas: Arkansas, Benton, Cleburne, Conway, Crittenden, Grant, Lonoke, Mississippi, Phillips, Pulaski, Saline, and Van Buren counties
  • Colorado: Larimer and Weld counties
  • Georgia: Bibb, Carroll, Douglas, Emanuel, Jefferson, Jenkins, Johnson, Laurens, McIntosh, and Twiggs counties
  • Iowa: Butler county
  • Missouri: Barry, Jasper, and Newton counties
  • Mississippi: Hinds county
  • Oklahoma: Craig, Latimer, Ottawa, and Pittsburg counties

• Tennessee Tornados - available through the end of March 2008 in:
  • Tennessee: Hardin, Macon, Madison, Shelby and Sumner counties

These programs were opened in 2007:

• California Wildfires - available through the end of December 2007 in:
  • California: Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara and Ventura counties
• Ohio, Oklahoma, Wisconsin flooding - available through the end of October 2007 in:
  • Ohio: Allen, Crawford, Hancock, Putnam, Richland, and Wyandot counties
  • Oklahoma: Blaine, Caddo, and Kingfisher counties
  • Wisconsin: Crawford, La Crosse, Richland, Sauk, and Vernon counties
• Minnesota flooding - available through the end of October 2007 in:
  • Fillmore, Houston and Winona counties
• Midwestern tornadoes - available through the end of August 2007 in:
  • Kansas: Elk, Miami, Montgomery, Neosho, and Wilson counties
  • Oklahoma: Ottawa and Washington counties
  • Texas: Cooke, Coryell, Denton, Grayson, Lampasas and Tarrant counties
• Kansas tornados - available through the end of June 2007 in:
  • Kiowa County
• Alabama & Georgia tornados - available through the end of April 2007 in:
  • Alabama: Coffee County
  • Georgia: Sumter County
• Florida tornados - available through the end of March 2007 in:
  • Lake, Seminole, Sumter and Volusia counties

These programs were opened in 2006:

• Flooding in the northeast - available through the end of August 2006 in the counties of:
  • New York: Broome, Chenango, Delaware, Herkimer, Montgomery, Oneida, Orange, Otsego, Schoharie, Sullivan, Tioga, and Ulster
  • New Jersey: Hunterdon, Mercer, and Warren
  • Ohio: Cuyahoga, Erie, Huron, Lucas, Sandusky, and Stark
  • Pennsylvania: Berks, Bradford, Chester, Luzerne, Monroe, Pike, Schuylkill, Susquehanna, Wayne, and Wyoming
• Tennessee and Missouri storms - available through the end of May 2006 in the counties of:
  • Missouri: Pemiscot
  • Tennessee: Dyer, Gibson
  • any other counties declared disaster areas from these storms

These programs were opened in 2005:

• Hurricane Wilma - available through the end of November 2005 in:
  • Florida: Collier, Lee and Monroe

• Hurricane Rita - available through the end of November 2005 in:
  • Louisiana: Beauregard, Calcasieu, Cameron, Jefferson Davis, and Vermilion
  • Texas: Chambers, Galveston, Hardin, Jasper, Jefferson, Liberty, Newton, Orange, and Tyler

• Hurricane Katrina - available through the end of October 2005 in:
  • Alabama: all counties that are declared disaster areas as a result of the storm
  • Florida: all counties that are declared disaster areas as a result of the storm
  • Louisiana: all parishes that are declared disaster areas as a result of the storm
  • Mississippi: all counties that are declared disaster areas as a result of the storm
  • other states: any county that is declared a disaster area as a result of the storm

• Hurricane Dennis - available through the end of August 2005 in:
  • Alabama: Baldwin, Escambia and Mobile
  • Florida: Bay, Escambia, Franklin, Gulf, Okaloosa, Santa Rosa, Wakulla and Walton

These programs were opened in 2004:

• Unnamed storms - available through the end of November 2004 in:
  • New York: Allegany, Broome, Columbia, Chenango, Delaware, Monroe, Orange, Onondaga, Steuben, Sullivan, Ulster, and Warren
  • New Jersey: Hunterdon, Mercer, Sussex, and Warren
  • Florida: Brevard, Hardee, Hernando, Highlands, Hillsborough, Indian River, Lake, Martin, Okeechobee, Orange, Osceola, Palm Beach, Pasco, Pinellas, Polk, Seminole, St. Lucie, Sumter, and Volusia
• Hurricane Ivan, Hurrican Jeanne, and other storms - available through the end of October 2004 in:
  • Alabama: Baldwin, Butler, Clarke, Coffee, Conecuh, Covington, Crenshaw, Escambia, Geneva, Mobile, Monroe, and Washington
  • Florida: Bay, Brevard, Broward, Calhoun, Citrus, Escambia, Franklin, Gadsden, Glades, Gulf, Hernando, Highlands, Holmes, Indian River, Jackson, Lake, Leon, Liberty, Martin, Miami-Dade, Okeechobee, Orange, Osceola, Palm Beach, Pasco, Polk, St. Lucie, Santa Rosa, Sumter, Taylor, Wakulla, Walton, and Washington
  • Georgia: Carroll, Cherokee, Cobb, Dawson, DeKalb, Early, Franklin, Fulton, Gilmer, Madison, Rabun, Towns, Union, and White
  • Louisiana the parishes of: Jefferson, Lafourche, Orleans, Plaquemines, St. Bernard, St. Charles, St. Tammany, and Terrebonne
  • Mississippi: George, Hancock, Harrison, Jackson, Perry, Stone, and Wayne
  • North Carolina: Avery, Buncombe, Burke, Caldwell, Haywood, Henderson, Jackson, Macon, Madison, McDowell, Mitchell, Polk, Rutherford, Transylvania, Watauga, and Yancey
  • Ohio: Belmont, Carroll, Columbiana, Guernsey, Harrison, Jefferson, Monroe, Morgan, Muskingum, Noble, Perry, Stark, Trumbull, Tuscarawas, and Washington
  • Pennsylvania: Allegheny, Armstrong, Beaver, Blair, Butler, Centre, Clearfield, Crawford, Cumberland, Dauphin, Indiana, Lackawanna, Luzerne, Lycoming, Northampton, Perry, Schuylkill, Susquehanna, Washington, Westmoreland, and Wyoming
  • Puerto Rico: Aguada, Aguadilla, Aguas Buenas, Aibonito, Anasco, Arecibo, Arroyo, Barceloneta, Barranquitas, Bayamon, Camuy, Canovanas, Carolina, Catano, Cayey, Ceiba, Ciales, Cidra, Coamo, Comerio, Corozal, Dorado, Florida, Guayama, Hatillo, Humacao, Isabela, Juana Diaz, Juncos, Lares, Las Piedras, Loiza, Manati, Maunabo, Moca, Morovis, Naguabo, Naranjito, Orocovis, Patillas, Quebradillas, Rincon, Rio Grande, Salinas, San Lorenzo, San Sebastian, Santa Isabel, Toa Alta, Toa Baja, Utuado, Vega Alta, Vega Baja, Villalba, and Yabucoa.
  • West Virginia: Brooke, Hancock, Marshall, Ohio, Pleasant, Tyler, Wetzel and Wirt
• Tropical Storm Bonnie and Hurricane Charley - available through the end of September 2004 in:
  • Florida: Brevard, Charlotte, Collier, DeSoto, Dixie, Duval, Glades, Hardee, Hendry, Highlands, Indian River, Lake, Lee, Levy, Manatee, Monroe, Okeechobee, Orange, Osceola, Pasco, Polk, St. Johns, Sarasota, Seminole, and Volusia

The article begins:

Sept. 10 (Bloomberg) — If the government didn't deny it, I'd swear they were trying to get rid of U.S. savings bonds.

In January, the Treasury Department made the bonds all but useless to financial planners and other savvy investors who bought them to capture high short-term interest rates. In May, the fixed-rate portion of the interest on Series I bonds, whose interest payments are linked to inflation, was set at zero.

Many of the issues Quinn talks about are ones we've covered here in the past. Like Quinn, we can't figure out what the folks in charge of this program are trying to accomplish, other than perhaps destroy it.

On the other hand, a TIPS defender "estimates that TIPS have saved the U.S. $275 billion since 1997 by lowering yields on regular Treasuries by 0.25 percentage point to 0.5 percentage point."

The text of the two press releases follows:

U.S. Sovereign Ratings Affirmed At 'AAA/A-1+' Despite GSE Weakness; Outlook Stable

NEW YORK Sept. 2, 2008–Standard & Poor's Ratings Services said today it affirmed its 'AAA/A-1+' sovereign credit ratings on the United States of America. The outlook is stable.

The ratings on the U.S. rest on its high-income, highly diversified, and exceptionally flexible economy. The ratings also reflect the U.S. public sector's fiscal flexibility and the unique advantages coming from the dollar's preeminent place among currencies. These strengths outweigh growing risks in its financial sector, longer term challenges of its entitlement programs, and the nation's weak external position.

According to Nikola Swann, Standard & Poor's credit analyst, "The U.S. has arguably the most flexible economy of any high-income nation, with both exceptionally adaptable labor markets and a long track record of openness to capital flows, as well as minimal government intervention." In addition, the public sector uses a far smaller share of national income than in the U.K., France, or Germany (all AAA/Stable/A-1+), implying greater revenue flexibility; and the U.S. dollar is by far the world's most used currency. The latter characteristic provides unique external flexibility: the vast majority of U.S. trade flows and external liabilities are denominated in its own dollars. "We do not expect that this privileged position will diminish in the medium term," said Mr. Swann.

"Risks to the U.S. credit profile do exist," he added. "The credit profile of most U.S. financial institutions has weakened in the past 12 months. Standard & Poor's calibrates that the potential up-front cost to the government of maintaining financial system stability could reach 24% of GDP in a deep and prolonged recession." This figure, which derives from estimated gross problematic assets comprising nonperforming loans, restructured loans, and repossessed collateral, is in line with the 'AAA' median estimate for contingent fiscal risks, but the probability of a portion of this potential cost being realized has risen. Most notably, falling house prices and rising mortgage delinquencies have raised the odds that the government will have to provide direct assistance to government-supported enterprises such as Fannie Mae or Freddie Mac or the Federal Housing Administration (see "What Could Change Our 'AAA' Credit Rating On The U.S. Government?" published today on RatingsDirect).

Longer term fiscal risks pertain to unfunded federal government pension plans for civil servants and the military and to entitlement programs such as social security and Medicare. The net present value calculations of these three obligations are 35%, 114%, and 539%, of GDP, respectively, as of 2007.

Mr. Swann pointed out that with a projected net external debt of 150% of current account receipts at year-end 2008, the country's exposure to a change in international investors' willingness to add to their portfolio of dollar assets grows with each year an external adjustment is postponed. "These risks are exacerbated by financial sector fragility. An extended period of weak domestic demand may be required to lower the country's current account deficit trend rate of 5% of GDP to a more sustainable level," he said.

The stable outlook reflects our view that the U.S.' considerable economic and financial strengths will continue to outweigh the risks to its credit profile. Substantial negative surprises affecting the medium-term prospects for economic growth, the trend of the general government deficit, and the potential for financial sector contingent liabilities to migrate to the general government balance sheet, combined with a meaningful decline in the global importance of the U.S. dollar, could cause us to change this view.

S&P Does Not Anticipate U.S. 'AAA' Credit Rating Changing As A Result Of The GSEs, Report Says

NEW YORK Sept. 2, 2008–The 'AAA' long-term rating on the U.S. is not likely to change as a result of the deteriorating credit condition of Fannie Mae and Freddie Mac or from the increased likelihood of their requiring direct government assistance, according to a report published today by Standard & Poor's Ratings Services. The report, entitled "Credit FAQ: What Could Change Our 'AAA' Credit Rating on the U.S. Government?", followed Standard & Poor's announcement Aug. 26 that it had lowered its risk-to-the-government ratings on Fannie Mae and Freddie Mac to 'A-' from 'A', the subordinated debt ratings on both to 'BBB+' from 'A-', and preferred stock ratings to 'BBB-' from 'A-', while affirming these government-sponsored entities' (GSEs') senior debt at 'AAA' (for more information, please see "Fannie Mae Sr. Debt Rating Affirmed At 'AAA/A-1+'; Other Ratings Lowered, On CreditWatch Neg.," and "Freddie Mac Sr. Debt Rating Affirmed At 'AAA/A-1+'; Other Ratings Lowered, On Watch Negative," both published Aug. 26, 2008, on RatingsDirect).

"Although the dislocations in the housing market have hurt the credit standing of Fannie Mae, Freddie Mac, and the entire U.S. financial system, we believe the U.S.'s credit strengths balance these weaknesses," said Standard & Poor's credit analyst Nikola Swann. These strengths include a high-income economy, and flexible product and labor market; the use of the dollar as the key international currency; fiscal room to maneuver; and strong and long-established institutions with transparency in policy making. "So long as these fundamental strengths remain in place, we do not expect direct assistance to GSEs, including Fannie Mae and Freddie Mac, to alter our rating or stable outlook," Mr. Swann added.

The report answers frequently asked questions concerning contingent liabilities from these and other GSEs, and the importance of these potential costs relative to other factors we consider when analyzing the credit quality of the U.S. government. It also provides our latest estimates of the greatest upfront fiscal costs the U.S. government could face in a stress test scenario of a recession worse than that of the 1970s, a scenario well beyond our current range of forecasts.