# Treasury Announces New Series I Savings Bond Rate of 2.20%

The Treasury just released the new I Bond and EE Bond rates. As I had calculated on April 13th, the new I Bond inflation rate is 2.20% (Actually, I and the Savings Bond Advisor had calculated that it would be 1 basis point higher.) The I Bond fixed rate remains at 0.00%. The EE Bond rate also remains the same with a rate of 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%. That might actually be a good deal if you're very pessimistic about future interest rates.

Hopefully, those who were interested in I Bonds made their 2012 purchases last month when we were able to know 12 months of the I bond inflation rate. Those who bought I bonds in April will receive 6 months of 3.06% and 6 months of 2.20%. Even if you plan to redeem them as early as possible, you will be able to get yields of around 2.27%. I described the calculation of this in my April 13th post.

For those who plan to buy I bonds with the current inflation rate of 2.20%, it's not as good of a short-term deal as the previous 6 months when the inflation rate was 3.06%. 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 October when September inflation numbers are released. At that time, we can compute the next I Bond inflation rate.

## Current I Bond Holders

If you have old I bonds, you'll have 6 months of rates that range from 2.20% (for I bonds with a 0% fixed rate) to 5.84% (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. They will mature after 30 years from the issue date. You can see the entire history of the fixed rates in this Savings Bond Advisor post.

Remember that the 6 months with the 2.20% inflation rate may not begin this month. It depends on 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 April 2010, the 2.20% inflation rate won't take effect on that I bond until October 2012.

## Series I Savings Bond Features

Below is a summary of the I Bond features. More information is available at this Treasury Direct 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
- $10,000 maximum of I Bond purchases per year (excluding purchases using your tax refund) - total was $60,000 before 2008 (Treasury's press release).

For more details about the purchase limit, please refer to the Treasury's press release on the new annual purchase limit and the Treasury Direct's purchase limit FAQs.

“Those who bought I bonds in April will receive 6 months of 3.06% and 6 months of 2.20%. Even if you plan to redeem them as early as possible, you will be able to get yields of around 2.27%.”

(1) Then...the actual interest rate will be 2.27% for this year?

(2) There’s no penalty to withdraw within or at the end of the first 12 months?

(3) If I leave it in after the 5 years, will I have to wait 30 years to withdraw without penalty?

(4) Does the

issuedate is the first day of the month in which the I Bond was purchased? So my I Bond issue date is 4-1-12 which I purchased 4-18-12?(5) I Bond Advisor stated: “I Bonds are a low-risk,

liquidsavings product.“ Not so liquid since there’s a penalty to withdraw within 5 years... lol!Thanks so very much! :) Adela

With so many questions and you bought I bond, I wonder, why did you buy it without reading the disclosure and the fine print on the Government site?

All of your requested answers are there and waiting for you to read it.

(anonymous)posted on1 - The effective rate will be 2.27% for you.

2 - You CANNOT withdraw in the first 12 months. After the first 12 months, and before 5 years are up from purchase, the penalty is 3 months interest. And you don't need to think of it as a "penalty", just think of it as a cost to get at your money before the preferred 5-year wait period has expired.

3 - After 5 years, there will be no penalty. No, I don't know what happens afte 30 years.

4 - yes and yes

5 - you are correct. I guess it all depends on what people mean when they say "liquid" Try this definition: http://www.investopedia.com/terms/l/liquidasset.asp

(anonymous)posted on1 - the 2.27% is the effective rate if you were to withdraw your money immediately after 12 months. This figures in the effect of losing 3 months of interest. If you kept your bond for 12 3 months, the effective rate of your bond for the first year would be something closer to 2.6%

3 - after 30 years, the bond stops earning interest. But quite frankly, I don't think anyone has plans to hold the bonds that long, especially since the fixed rate is 0%

(anonymous)posted on"1 - the 2.27% is the effective rate if you were to withdraw your money immediately after 12 months. This figures in the effect of losing 3 months of interest. If you kept your bond for 12 3 months, the effective rate of your bond for the first year would be something closer to 2.6%"

...even withdrawing only within the 12 months (as opposed to within 5 years) still we lose the 3 months of interest? So if we don't withdraw then at about 12 3 months the rate will be 2.6%?

You are so right that no, I wouldn't leave it in for 30 years even with a good interest rate. I may not exist at time of redemption! lol!

Thanks so much! I can see I'll have to take more time to figure out all these things. :) Rosedala