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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 3.06%

POSTED ON BY

The Treasury just released the new I Bond and EE Bond rates. Just as we had calculated on October 19th, the new I Bond inflation rate is 3.06%. The I Bond fixed rate remains at 0.00%. The EE Bond rate fell from 1.10% to 0.60%. The EE bond fixed rate applies to a bond's 20-year original maturity. However, if EE bonds are held for 20 years, they are guaranteed to double in value which equals an annual return of 3.50%.

Hopefully, those who were interested in I Bonds made their 2011 purchases last month when we were able to know 12 months of the I bond inflation rate. Those who bought I bonds in October will receive 6 months of 4.60% and 6 months of 3.06%. Even if you plan to redeem them as early as possible, you will be able to get yields of around 3.30%. I described the calculation of this in my October 19th post.

For those who plan to buy I bonds with the current inflation rate of 3.06%, it's not as good of a short-term deal as the previous 6 months when the inflation rate was 4.60%. However, it's still a good deal when compared with alternatives like short-term CDs. We won't be able to calculate the exact short-term return on these purchases until mid April when March inflation numbers are released. At that time, we can compute the next I Bond inflation rate. Currently, we can only guess about the next I Bond inflation rate. We can calculate the worst case return by assuming a zero percent inflation that takes effect next May.

The calculations of the yields below assume that the I bond purchase is made at the end of November 2011. Also, it's assumed that the inflation rate of the second six months is the worst case scenario (zero percent).

• 1.67% - redeem on 11/1/12, 6mo of 3.06%, 3mo of 0.00%, and 3mo of 0% (penalty)
• 1.53% - redeem on 12/1/12, 6mo of 3.06%, 4mo of 0.00%, and 3mo of 0% (penalty)
• 1.41% - redeem on 1/1/13, 6mo of 3.06%, 5mo of 0.00%, and 3mo of 0% (penalty)
• 1.31% - redeem on 2/1/13, 6mo of 3.06%, 6mo of 0.00%, and 3mo of 0% (penalty)

The same rates would also apply if the purchase is made in the months from December 2011 through April 2012. If you wait until mid-April when CPI-U is released for March, 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.

## Current I Bond Holders

If you have old I bonds, you'll have 6 months of rates that range from 3.06% (for I bonds with a 0% fixed rate) to 6.72% (for I bonds with a 3.60% fixed rate). Back in the good old days, the I bond fixed rates used to be above 3.00%. The highest I bond fixed rate was 3.60% during the period from May 2000 to October 2000. If you have any of those I bonds, you'll want to keep them as long as you can.

Remember that those 6 months with the 3.06% inflation rate may not begin this month. It depends when you purchased the I bond. An I bond's new inflation rate takes effect every six months after its issue date. So if you purchased an I bond on October 2010, the 3.06% inflation rate won't take effect on that I bond until April 2012.

## Other Savings Bonds News

If you have an account at TreasuryDirect, be prepared for some changes to how you log in. Here's an excerpt from TreasuryDirect:

To make our customers' experience better, we're updating TreasuryDirect's authentication process. The change will make it easier for you to access your new account.

If you open an account now, we'll send you an access card in about two weeks which you'll use to login. The access card will soon be phased out, so it will only be needed for a short period of time.

The new process replaces the access card with an equally secure method of logging in. So, you may wish to delay opening your account until the new process is in place on or about November 4, 2011.

You will no longer have to worry about the access card. I know some people disliked this extra overhead in the login process. However, I appreciated the fact that hackers would be unable to break into the account without the physical access card. Hopefully, their claim that the new process will be just as secure as the current one is true. It's very important that TreasuryDirect's security be 100%. An excerpt from the Savings Bond Advisor shows why it's so important:

Regulation E doesn't apply to Treasury Direct. This is the banking regulation that says if a thief gets your credit card number, your liability is limited.

If a thief gets your TreasuryDirect details, changes the bank account, and cashes in your funds, you likely won't know until months later when you receive the 1099-INT tax form telling you how much interest income you earned. Meanwhile, the Treasury is adamant that it will not cover your losses.

## Series I Savings Bond Features

Below is a summary of the I Bond features. More information is available at this Treasury I Bond page:

• Can't be redeemed within 12 months of issue date
• Lose 3 months interest if redeemed within 5 years
• Interest is composed of fixed and inflation-based rate
• Fixed rate remains for life of bond
• Inflation-based rate changes every 6 months after issue date
• New rates announced every six months on November and May 1st
• Federal tax can be deferred on interest until bond is redeemed
• Interest is exempt from state and local tax
• Some or all interest is tax exempt when used for educational expenses

The current I Bond purchase limit is \$10,000 per year (\$5K online and \$5K paper). However, starting in 2012, you will no longer be able to purchase paper I Bonds from banks and credit unions (see my post on this change).

Comment #1 by Anonymous posted on
I tried to open an online account before November however due to unknown problem, TD can't verify my bank account (The same info such as name/routing/acct/acct type used by another bank was verified without any problem).  In order to fix that, you have to fill out a form, take it to the bank, have someone sign it for you and mail the form back.  What a pain.  I wonder if it is possible to create another online account and destroy the old one.  If anyone has done that before, I love to hear how you do it.

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Comment #2 by EnronLoveChunk posted on
Same thing happened to me. I believe they can freeze your account after opening one until you get that form signed also. The form has to be signed by a branch manager at a bank or credit union. It's a pain but it is to verify you are you and not someone else. If you do go to a bank or credit union bring your i.d. and atm card or debt card along with that form. Also make sure a branch manager who can sign it is there.

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Comment #3 by linmarie posted on
It's been my experience that banks don't like to sign these Treasury Direct forms.  I tried to change my beneficiary and both Wells Fargo and Chase refused to sign the form.  I have accounts with both these banks and they both told me that they no longer sign these forms.

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Comment #4 by Anonymous posted on
I had to get the form signed too, and Chase did it for me without a hitch. Then again I have a good relationship with the people at my branch so they might be willing to do me favors they won't do for everyone. But I'm sure there isn't a compyny wide prohibition on it because the folks at my branch aren't stupid, they wouldn't do something that would get them in trouble.

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Comment #5 by ME 5 (anonymous) posted on
DITTO

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Comment #6 by Anonymous posted on
Please bear with me.  I'm having difficulty understanding about the yields.  Based on your example of the yields, why do they go down if you hold the bond longer than a year.  Can someone explain that to me?  Thanks in advance....

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Comment #7 by Anonymous posted on
Ken's hypothetical assumes 0% interest for the 2d 6 months and each hypothetical thereafter assumed yet another month of 0% interest so the yield is lower because each example has a greater time horizon of 0% interest.

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Comment #8 by Anonymous posted on
Does anyone know how/when interest posts to I bonds on TD?  I have bonds that I purchased in late May, and as of 11/2 TD only shows the original purchase amount.

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Comment #9 by I STILL LIKE PAPER BONDS!!! (anonymous) posted on
ANOTHER REASON B OF A IS      B   OF   CRAP!

THE ONLY BANK THAT HAS DISCONTINUED ACCEPTING PAPER BOND APPLICATIONS!

WITH ALL THE CRAP THEY WASTE PAPER AND POSTAGE ON, WOULD IT HAVE BEEN SO DIFFICULT FOR THEM TO NOTIFY CUSTOMERS WHO HAVE BEEN BUYING BONDS THROUGH THAT BANK FOR MANY MANY YEARS THAT THEY WHERE CUTTING THE PROGRAM 90 DAYS TOOOO SOOOON!

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Comment #10 by Anonymous posted on
I'm #1, so there is no way to create another TD account?  It's just plain stupid considering this is not even my fault.  As I stated above, another bank has no problem with the info I supplied, no typing error or whatsoever.  Banks near my place don't sell paper bonds anymore.  You're lucky to find one.

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Comment #11 by Anonymous posted on
About 5 years ago, I began buying I-bonds because I was worried about inflation.  Since the base interest rate was about 3% on the bonds I bought, I have, approximately, and before tax, kept up with the real inflation rate, which runs at about twice the government's fraudulent calculation of inflation (see www.shadowstats.com).  I will not have lost a huge amount of buying power, therefore, at least compared to the result of keeping this money in CDs would have given me.

In January, when all of them are 5 years old, I will return them to our lying government, because the real inflation rate, now, is more than 6% per year already and growing fast.  When the economy recovers, inflation will go into the double and triple digit levels, and I-bonds will begin to be very bad investments.  For example, if the real inflation rate is 30% and the government says it is 15% at that time, you will lose 15% per year in buying power value on your money each year.  If real inflation is 100%, and the government reports 50%, you will lose half of your money each year.  That far outweighs the 3% base rate I have on most of my I-bonds.

I will move the cash into a demand deposit, and probably buy precious metals with the money, as soon as another central bank inspired attack on their prices occurs.  I might buy some Canadian or Australian dollars and open a Canadian or Australian bank account, if those currencies take a huge temporary decline, induced by the central banks trying to defend the dollar, pound and Euro.  But, probably, those countries will devalue their currencies also, so I prefer metals, and may not touch foreign currency.  It is likely that any attacks on foreign currencies will come at the same time as central banker attacks on precious metals, so the dip buying can occur in metals, which is preferable.

One thing I will certainly NOT do is invest in Federal Reserve Note denominated CDs or bonds, because I don't want to be a passive prey animal eaten alive by carnivorous corporate interests in America, Europe and the UK.

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Comment #12 by Anonymous posted on
One more thing.  I will ONLY buy physical precious metals, NOT the fake stuff dreamed up by ETF promoters, or the leveraged paper created at the futures markets.

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Comment #13 by Anonymous posted on
DO NOT "trade" metals with eToro, which is a Cyprus company that advertises on this website.  The accounts are completely leveraged, and it is doubtful that real metal backs any of them.  Buy ONLY physical precious metals that you can touch, feel and hold.  The others are too potentially fraudulent to consider.

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