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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 Raises the Fixed Rate for Series I Savings Bond


Treasury Raises the Fixed Rate for Series I Savings Bond

The Treasury just released the new I Bond and EE Bond rates. In a surprising move, the Treasury increased the I Bond fixed rate from 0% to 0.20%. That’s the first time the I Bond fixed rate has been above zero since 2010. The I Bond inflation rate is 1.18%. That results in an I Bond composite rate of 1.38%.

It’s interesting to note that this new I Bond inflation rate is the same as the previous rate. It was also below 2% a year ago (1.76%). We weren’t able to calculate this inflation rate until last Wednesday due to the government shutdown delaying the release of September CPI data.

The Treasury wasn’t as kind to EE Bonds. Its rate fell from 0.20% to 0.10%. In my opinion, the only reason to purchase an EE Bond is if you’re planning to hold it for 20 years. In that case, the EE Bond is guaranteed to double in value. This is equivalent to an annual return of 3.50%.

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 April 2014.

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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melman   |     |   Comment #1
"So if you purchased an I Bond on October 2012, the 1.18% inflation rate won't take effect on that I Bond until April 2014."


Actually, the inflation rate on that bond changed to 1.18% this month (October 2013) because the same inflation rate was announced in May 2013.

I'm very surprised to see the fixed rate for new bonds go above zero, if only by a little bit.  I have some bonds bought in 2011 and early 2012 when the inflation rate was a bit higher but their fixed rates are zero.  I wonder if it's worth cashing them in and buying new bonds with the 0.2 fixed rate.  With taxes to pay and a penalty of 3 months' interest, probably not.
QED   |     |   Comment #2
What continues to be amusing about these I bonds is that the government gets to determine the inflation rate.  I trust those government numbers about as much as I'd trust a hungry lion with my head in its mouth.
Robert   |     |   Comment #3
Someone posted this calculation to the Bogleheads forum: "it would take 18 months with the new 0.2% fixed rate to recoup the penalty of 3 months interest at 1.18% for selling I Bonds held less than 5 years to buy new bonds" 

paoli2   |     |   Comment #4
You don't have to worry about a hungry lion having your head in it's mouth.  As long as your hands are free you just tickle it until he opens his mouth to laugh and you are home free!  In other words, smart folks always can find a way out of a bad predicament.  The lions are not near as dangerous tho as what is going on in Obamaland today. 
Robert   |     |   Comment #5
What I'd like to know is why.  Why did the government all of a sudden decide to have a positive fixed rate after three years of zero fixed rate?  How do they decide and how do they decide how much it should be? 
Anonymous   |     |   Comment #6
Two words... "ouija board".
Anonymous   |     |   Comment #7
The Treasury is probably thinking that they need to get more buyers of the bonds so that they can get more reserve funds and allow a longer time period before they have to reach a default deadline.
Cracker   |     |   Comment #8
I purchased $30K of I-Bonds back in 6/2001 which have a 3% fixed rate.  I will be holding onto those for a LONG TIME.


I also purchased $5K each in 4/2008 and 3/2009.  Those are earning a fixed rate of 1.2% and 0.7% respectively.  It seems, after checking the history of the fixed rates, that my timing for purchasing was rather fortuitous.
Anonymous   |     |   Comment #9
Just tried what paoli2 suggested and it does not work, but lions aside, taxes, and inflation, are going to go up much faster than interest rates, so savers lose the battle either way. Hey just buy stocks today and don't worry about tomorrow.
Anonymous   |     |   Comment #10
The fixed rate needs to be over 0.8% before the bond's value will truly keep up with inflation after taxes.
Anonymous   |     |   Comment #12
Curtis you bank with the U.S. Treasury? Wow!
Anonymous   |     |   Comment #13
There really is less than any three month penalty...as Ken has said before, buy just before the end of the month.
Anonymous   |     |   Comment #14
It might be worth cashing in I Bonds purchased from May through October of 2008 (fixed rate 0%, no 5 year penalty) and buying new ones with the higher fixed rate. But only if you won't be using new money to maximize your 2013 or 2014 $10,000 limit.
ct   |     |   Comment #15
So how is the penalty calcuclated?  ie is there a best day to withdraw?

My assumption is that they just subtract the last 3 interest payments accured, so withdrawling on the 2nd of the month seems the most opportunistic time.
Anonymous   |     |   Comment #17
You can also download the savings bond wizard from treasurydirect.gov.  It will help keep an organized inventory of your savings bonds and give you the current value and interest rate and also the amount you would get if you cashed them in.