Index:

The basics: What Treasury proposes.

Would the bonds fit your financial plan?

History in the making: An economist's view.

How to buy bonds directly from the government.

Calculator: See how the bonds compare.

Still have questions? E-mail us.

Disclaimer: Please read this.

Internet links.

This calculator will help illustrate the difference in payouts between conventional Treasury notes and bonds, and the proposed inflation-indexed bonds. The U.S Department of the Treasury will auction 10-year bonds in January, and is considering other forms and terms of the bonds, including 30-year bonds, zero-coupon bonds and a bond that makes combined interest/principal payments through the life of the bond.

NOTE: Since inflation-indexed bonds don’t exist yet – in the United States, that is – the bonds here are hypothetical, and the results should be considered approximate.

They are modeled after typical U.S. Treasury notes and bonds, which pay interest twice each year.

This calculator will run comparisons on either 10-year notes or 30-year bonds. To use this calculator:

1. Choose the term of the bond, either 10 years or 30 years.

2. Choose an interest rate for the conventional bond. The interest rates on 10-year Treasuries have ranged from 2.4% to 13.9% since 1952. The interest rates on 30-year Treasuries have ranged from 6.6% to 13.5% since 1977. Historical rates can be found at http://www.gpo.ucop.edu/catalog/erp.cta.html#money, in the Economic Report of the President (choose the table "Bond yields and interest rates"). To get the latest rates, we suggest checking USA Today’s “Saver’s Scoreboard” interest rate page.

3. Choose an interest rate for the inflation-indexed bonds. Don’t go crazy; these bonds are expected to pay a fairly low interest rate. The United Kingdom’s inflation-indexed bonds have paid between 3% and 4%.

4. Choose an inflation rate. As measured by the Consumer Price Index for All Urban Workers, inflation has averaged 3.5% over the last 30 year, but has averaged 5.4% over the past 20 years. Inflation has not been higher than 3.0% since 1991. For the 12 months ending in April, inflation is 2.9%, and is running at a 3.9% annual rate for the three months ending in April.

5. Choose a principal amount for the bonds. These will be sold in denominations as low as $1,000.

When you’ve entered all the fields, hit “submit.” You’ll see a schedule of interest payments, and for the inflation-indexed bond, the progression of the principal as it’s adjusted upward for inflation. The last line of each table shows the total of the principal and interest payments through the years, illustrating the difference in the payouts between the two types of bonds.

The results for the inflation-adjusted bonds should be considered hypothetical. It’s impossible to predict inflation, of course, and though you can compute how the bonds will perform for average interest rates, the actual performance will be different, because in some years inflation will be above or below the average. It will make a difference in the bottom line, for instance, if inflation is high early in the term of the bond. This will cause larger adjustments to principal early, meaning interest will be paid on the larger principal for a long time, resulting in larger interest payments through the life of the bond.

If you find bugs in this calculator, please report them to the webmaster.