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.
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.