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Treasury Announces New Series I Savings Bond Rate of 1.18%

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The Treasury just released the new I Bond and EE Bond rates. As I had calculated on April 16th, the new I Bond inflation rate is 1.18% which is down from 1.76%. The I Bond fixed rate remains at 0.00%, so the I Bond composite rate is 1.18%.

The EE Bond rate remains at 0.20%. 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%. With a rate of only 0.20%, the only reason I can see for buying EE Bonds is if you plan to hold them for 20 years. That might actually be a good deal if you're very pessimistic about future interest rates.

Those who bought I Bonds in April will receive 6 months of 1.76% and 6 months of 1.18%. Even if you plan to redeem them as early as possible, you will be able to get yields of around 1.27%. I described the calculation of this in my April 16th post.

For those who plan to buy I Bonds with the current inflation rate of 1.18%, it's not as good of a short-term deal as the previous 6 months when the inflation rate was 1.76%. 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 1.18% (for I Bonds with a 0% fixed rate) to 4.80% (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 1.18% 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 October 2012, the 1.18% inflation rate won't take effect on that I Bond until October 2013.

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 per social security number (excluding trust/business purchases and 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.



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Comments
6 Comments.
Comment #1 by Anonymous posted on
Anonymous
The EE bond may be a great deal since the FED will continue to keep rates at zero deep into the 21st Century.  The only downside is when Chelsea Clinton becomes president and institutes a 100% tax on EE bond interst.

9
Comment #2 by Anonymous posted on
Anonymous
Bogus interest rates, bogus unemploymet rates, bogus GDP, bogus inflation rate, bogus......bogus and then some more bogus info spread by the FEDs and if you believe in such info, please do so and buy I bonds, I'm out of the US dollar and staying out for good.

9
Comment #5 by Anonymous posted on
Anonymous
#2, you are correct, the interest rates on I Bonds will always be bellow the inflation rate, why you ask, just because the I Bonds rates are set by the same entity as the inflation rates. The devil will never admit to being bad person.

2
Comment #3 by Anonymous posted on
Anonymous
now if you will just stay out of the country bogus one

5
Comment #4 by Anonymous posted on
Anonymous
#3, I think you are being to harsh on #2.
He or she did not say anything wrong or untrue, it is a fact that most of the information spread by Ben is ficticious fantasy.
Printing money and deciding what interest rate will prevail without letting the free market decide the rates is a fact. I Bond rates are make believe rates and does not reflect the reality.
If I have a chance, I’ll do the same thing as #2, nothing wrong with it, after all, Bernanke, the US President and most wealthy people keep some if not most of their assets in foreign currency.
And for your attack on #2, makes no sense at all, you did not post any facts in contrary to the findings of #2, which by the way, most of us will agree with #2.

9
Comment #6 by Anonymous posted on
Anonymous
can the person who is out of the u.s. dollar share what they are into instead of the dollar?

1