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Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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# Treasury Announces New Series I Savings Bond Rate of 4.60%

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The Treasury just released the new I Bond and EE Bond rates. Just as we had calculated on April 15th, the new I Bond inflation rate is 4.60%. The I Bond fixed rate remains at 0.00%. The EE Bond rate actually went up from 0.60% to 1.10%.

As I explained on April 15th, I Bonds are now a good deal for a short-term investment as compared to short-term CDs. Now that May has started, we only know the interest rate for the first six months. However, if we assume the worst case for the second six months (0.00%), we can calculate rates for terms of just over 11 months to 15 months. Here's a repeat of the rates that I calculated which assumes that the I Bond is purchased near the end of May 2011:

• 2.51% - redeem on 5/1/12, 6mo of 4.60%, 3mo of 0.00%, and 3mo of 0% (penalty)
• 2.30% - redeem on 6/1/12, 6mo of 4.60%, 4mo of 0.00%, and 3mo of 0% (penalty)
• 2.12% - redeem on 7/1/12, 6mo of 4.60%, 5mo of 0.00%, and 3mo of 0% (penalty)
• 1.97% - redeem on 8/1/12, 6mo of 4.60%, 6mo of 0.00%, and 3mo of 0% (penalty)

The same rates would also apply if the purchase is made in the months from June through October 2011. If you wait until mid-October when CPI-U is released for September, we'll know the inflation rate for the second six months. The above rates will be higher if that inflation rate is higher than zero.

## How Late in the Month Can You Purchase an I Bond?

As I described in my last post, you can maximize your rate of return if you buy an I Bond near the end of the month and redeem the bond at the start of the month. The reason is that interest is added to the I Bond at the start of each month. By purchasing the I Bond at the end of the month and redeeming the bond at the start of the month, you can gain almost a month worth of interest.

There is one risk: your late-month purchase gets pushed into the next month. So you don't want to wait too late in the month.

How late in the month can you wait?

I ran an experiment last week at Treasury Direct to see how late in the month you could buy a savings bond without having the issue date be pushed into the next month.

I purchased a small I Bond at 1:20pm CDT last Thursday on 4/28/2011 from my Treasury Direct account. Before I submitted the order, I was informed that the purchase date would be moved to the "next available business day". That would be Friday April 29th. I assumed this would likely be the issue date, but after I submitted the order, the confirmation information included the following note: "Effective Date(s): Security purchases are generally issued to your TreasuryDirect account within one business day of the purchase date."

I just checked my TD account this morning, and the issue date was in fact April. I also checked my bank account which is linked to the TD account, and the bank account was debited on Friday 4/29/2011.

In summary, I purchased the I Bond at Treasury Direct on Thursday 4/28/2011 and the issue date was April. So if you want the issue date of the savings bond to be the current month, you should make sure your purchase is no later than the second to last business day of the month.

I can't say buying the savings bond on the second to last business day of the month will always guarantee an issue date of the current month. To play safe, you may want an extra day before the end of the month. One thing to note was that my bank account was already linked in my TD account. If you're just setting up your TD account or if you're trying to link a new bank account, you'll definitely need more time.

I only did this experiment for buying electronic bonds at Treasury Direct. For buying paper I Bonds, My Money Blog has a good review. According to that review:

The issue date of the savings bond will be the same day that the bank accepts payment. This date will be noted on the application, and the bank should also stamp it to confirm.

You may want to buy paper I Bonds so you can double the amount of I Bonds you can buy.

## Purchase Limits

An important downside with savings bonds is the annual purchase limit. For I Bonds, the annual purchase limit is \$5,000 at Treasury Direct and \$5,000 for paper bonds. This is based on a calendar year and on your social security number. So a family of four could buy \$40,000 of I Bonds in one year.

Back in January 2008 the Treasury slashed the purchase limit from \$30,000 to \$5,000 for both electronic and paper I Bonds. According to the Treasury's 2007 press release:

The reduction from the \$30,000 annual limit in effect for both series since 2003 was made to refocus the savings bond program on its original purpose of making these non-marketable Treasury securities available to individuals with relatively small sums to invest.

The next change that could cut the purchase limit in half would be if the Treasury ends paper bonds. The Treasury just recently announced that it will be eliminating the paper option for its Payroll Savings Plan. As described by the Savings Bond Advisor, the Treasury has plans to eliminate the issue of all paper savings bonds, but no date has been set. Hopefully, the Treasury will at least double the purchase limit of savings bonds at Treasury Direct when they end paper savings bonds. Based on what they have done in the last few years, I'm not too optimistic about this.

## Series I Savings Bond Features

For more I Bond details, please refer to the bottom of my last Series I Savings Bond review.

#### Related Posts

Comment #1 by Anonymous posted on
It is quite obvious that the Federal Government prefers not to borrow any money from public where it will need to pay the public interest that is tied to inflation.  Of course there are alternatives to the various  limitations the US Treasury may put in place. Warious TIPS, and Mutual Funds / Exchange Traded Funds that have underlying securities as TIPS are the likely alternatives.  There of course is no limit to the amount of TIPs and/or MFs/ETFs one may buy.  The risks with TIPs and related MFs/ETFs are different from those for the i-Bonds,  but there are alternatives ...

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Comment #2 by SaveYurMoney posted on
If you think inflation will continue the I-Bond may be a good decision.  That zero% fixed rate is kind of ridiculous though.  Has there ever been such a wide diversion between the fixed and variable rates?

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Comment #3 by Anonymous posted on
The annual limit on the Savings Bond purchase per SSN is to get big investors to the T-Bill, Note, and Bond side of the Treasury Direct system and not the Savings Bond side. The Savings Bond was looked upon as a investment tool for people giving bonds as a gift or for education purposes.  These buyers are not prone to making big purchases.  The higher investments need to go to the U.S. marketable securities arena and not to the Savings Bond side.

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Comment #4 by me1004 posted on
Gee, this sounded like something to pursue -- until I read the incredibly low maximum purchase. \$5,000 purchase limit just isn't worth the bother. Too bad.

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Comment #5 by Leberk (anonymous) posted on
Some banks are still not properly informed on the purchase limits, or are they intentionally playing dumb because the I-Bond rules out any consideration of a low interest Bank CD?

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Comment #6 by Anonymous posted on
Yeah, I Bonds work best if you accumulate a lot of them over a period of several years.

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Comment #7 by Anonymous posted on
I believe that even though you are limited to 5k electronic and 5k paper I bonds per year, that the paper can then be exchanged for electronic thru treas direct.  Why the extra hoop to jump thru???

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Comment #8 by Anonymous posted on
I'm thinking that co owners would be a good way to get around the limits but still have 1 person managing everything. Thoughts?

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Comment #10 by Worrysome (anonymous) posted on
I am debating if I should sell all or half of my I-Bond this year...  I-Bond is a great way to save only if the US government can pay us back in the future.  The way this government is spending right now, along with printing all that money, will surely collapse the whole financial system in near future. (S&P also gave similar warning a couple weeks ago). If the collapse happens, will the government be able to pay us back? I doubt it. What happened in Greece will happen in every country that does not put its finances in order.

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Comment #12 by Teacher posted on
This may be a stupid question, but I don't know the answer- When bonds pay interest, do they pay on the whole bond value (face value accumulated interest) I guess this is compounded interest, Or do they pay only on the face value?  I have a couple on Ibonds paying 8.5%, but is this on the original value only, or on the current value?  I also have a lot of EE's?  Don't know if I should keep the EEs or not and the answer to this will help me determine that.

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Comment #13 by Anonymous posted on
I complained to my congressman about the treasury department having separate data bases for paper and electronic bonds. They solved the problem by eliminating paper bonds effective jan 1, 2012.

Treasury has no plans to increase the maximum purchase limit, so the maximum limit is effectively being reduced by 50%. Now you have to use additional Social Security numbers to get around the limit. A very subtle way of helping to achieve the current administration's objective of wealth redistribution.

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