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Treasury Announces New I Bond Rate of 5.64%


The Treasury just released the new I Bond rates this morning. The new fixed rate is 0.70%. When combined with the new inflation rate of 4.92%, the total rate is 5.64%.

The inflation component was already known based on the previous CPI numbers. However, the fixed rate component is determined secretly by the Treasury. Last May the Treasury set this fixed rate to 0%. The 0.70% rate is much improved, but it's still lower than it has ever been before 2008. Below is a summary of the old and new I Bond rates:

New rates for November 2008 through April 2009:

fixed Infl Combined
rate rate rate
0.70% 4.92% 5.64%

Old rates that ended in October 2008:

fixed Infl Combined
rate rate rate
0.00% 4.84% 4.84%

For a history of I Bond rates please refer to this post.

The 5.64% rate may look appealing, but it's important to consider that recent inflation is why it's so high. As can be seen in the last month, gas prices have been going way down. So it's likely we'll see a much smaller inflation rate in May 2009.

A good example of what may happen occurred in May 2006. The I Bond inflation component on November 2005 was very high due to the gas price spikes triggered by Hurricane Katrina. When gas prices subsided, inflation went down. The result was an I Bond inflation component in May 2006 of only 1.00%. So if you buy an I Bond now, you may be very dissappointed in the rate during the second 6-month period.

Another downside of I Bonds is the low annual perchase limit ($5,000 for electronic and $5,000 for paper). Please refer to the Treasury Direct page for the official details.

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Anonymous   |     |   Comment #1
Getting 5.64% + 1.20% Fixed rate so 6.84%. Better yielding than any other investment right now that is 100% SAFE backed by the treasury.

The problem is the amount they allow you to put into it.

I remember when I went into HSBC to purchase the I-Bond and the lady was unaware of the product and I had to tell her the rates for it as she asked.
Frugal Frugalson
Frugal Frugalson   |     |   Comment #2
anonymous, your composite rate for this reset won't be 6.84% with a 1.2% fixed rate. Based on 4.92% variable and 1.2% fixed rates, the composite rate will be 6.15%.
Anonymous   |     |   Comment #3
Sorry meant 6.15%.

Yes the rate + 1.20%.

The new adjusted rate went up since last time which is good. :-)

Im now debating if I should move to dollarsavingsdirect for 4%.

I need a place to park funds that are high rate and 100% safe since the new fixed rate of ibonds combined with the very small dollar amounts make it an investment worth persuing for everyone with their small funds as a safety net.
Anonymous   |     |   Comment #4
I'm a novice at the I Bond's but has anyone calculated what the return would be if you sold in 12-15 months? I recall something along the lines of a 3 month interest fee for cashing in early.

Anonymous   |     |   Comment #5
Yes it's 3 months interest if redeemed before 5 years.

iBond is also exempt from state and local income tax.
goldsheet (Bob)
goldsheet (Bob)   |     |   Comment #6
Really glad I bought some years ago when fixed component was 3.4% and 3.6% - great current return.

Fixed Component History
Anonymous   |     |   Comment #7
Couple of examples ~
12 month duration/low inflation/rate drop:
next variable = 1%
composite rate = 1.7%
yield = 3.25%

15 month duration/steady rate:
next variable = 4.94%
composite rate = 5.64%
yield = 4.52%
Anonymous   |     |   Comment #8
I'm wondering how this affects those of us that purchased IBonds this past April? The Bank Deals post back then said that a full year of rates were predictable because of the inflation numbers, and by buying the bonds just before the rates were officially announced May 1. Now, does that mean that next April we would start receiving an additional 6 months at the new high 4.92% inflationary rate?
Banking Guy
Banking Guy   |     |   Comment #9
Yes, I believe it does. The inflation rate only changes at the 6-month anniversary dates of your I Bond purchase. So if you purchased I Bonds in April 2008, you would earn:
* 6 mo of Nov 07 infl rate (3.06%) from Apr 08 thru Sep 08
* 6 mo of May 08 infl rate (4.84%) from Oct 08 thru Mar 09
* 6 mo of Nov 08 infl rate (4.92%) from Apr 09 thru Sep 09

It continues to be a good deal for those who bought I bonds back in April 2008.
Anonymous   |     |   Comment #10
So it looks like the 0.7% fixed might not be a bad gamble, best case you get a 15 month return in the mid 4% range which is better than CD's right now and worst case you probably looking at a mid to low 3% range which would be under CD's but still better than most Savings, Checking and many MMA's over 15 months.
vladimir   |     |   Comment #11
My understanding is I Bonds are tax deferred which can be an added bonus? No local and state, but also tax deferred? If so, then the I bonds could be used to add to your retirement when you are not working and your income is less.
Anonymous   |     |   Comment #12
The Savings Bond purchase limit change (from $30,000 to $5000 per taxpayer number per purchase type) that was instituted in 2008 was meant to push investors into the Treasury Direct system to invest in government securities. T-bills are currently being offered at historic low rates because of the financial meltdown. The guaranteed rate was shrunk to zero earlier this year for these bonds. So that made these bonds less attractive to investors (along with maximum amount rule). I bought several bonds with the 0% guaranteed rate at the end of October, so I guess I should have waited until after November 1. But I did buy a large amount of them back in the 2002-2003 years for the family when the maximum amount allowed was $30,000 per person. The payroll savings plan is all but dead. They don't even do any promotion on the program at work for the past few years.
vladimir   |     |   Comment #13
I OBAMA BONDS. The best protection against OBAMA inflation plan, but limited to $5K electronic and $5K paper.