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Treasury Lowers the Fixed Rate for Series I Savings Bond


Treasury Lowers the Fixed Rate for Series I Savings Bond

The Treasury just released the new I Bond and EE Bond rates. The Treasury decreased the I Bond fixed rate from 0.20% to 0.10%. The I Bond inflation rate is 1.84%, very close to what I calculated on April 17th. That results in an I Bond composite rate of 1.94%. If you decided to buy an I Bond in April, you made a good choice. I thought there was a good chance that the fixed rate would fall since the fixed rate had been zero for three years before November 2013.

The Treasury was kind to EE Bonds. Its rate increased from 0.10% to 0.50%. That new rate is still low, so 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 1.84% (for I Bonds with a 0% fixed rate) to 5.47% (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 TreasuryDirect page.

Remember that the 6 months with the 1.84% 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 2012, the 1.84% inflation rate won't take effect on that I Bond until October 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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Yossi Pancer
Yossi Pancer   |     |   Comment #1
if you hold the EE bond for 20 years , the rate is actually 3.60% and not 3.50%
gli   |     |   Comment #2
So in short - with investment capped at $10,000 per year, the EE bond is a 20 year CD offering to double your investment. Is that a correct statement?

That is a very long time to lock of that money with no hope of an interest increase without being rewarded accordingly (with higher interest).
Anonymous   |     |   Comment #3
Half my I bonds are 1.6% fixed rate and half are 3%... also have ee bonds that were 6% when I bought them and now pay me 4% until they mature.  I bond base rate .10% and with limits on top of that.... they can keep that garbage.
scottj   |     |   Comment #4
this stuff confuses me but someone posted this link on FW that now makes it easy for me to see what each of my bonds is and will pay

Anonymous   |     |   Comment #5
Oh well, wake me when it's over.  Never mind, I won't be around by then.
Anonymous   |     |   Comment #9
To #3, what is available on the open market that is safe and is better than I-Bond?

Unless you are 100% stock and like risk...or 100% gold (but oh yeah that went down -30% last year).

Please tell me: what is currently better?
Anonymous   |     |   Comment #14
I don't care what is on the open market... the treasury is not getting any of my money for a .10% base rate and yes I am in the market and I own CDs I bonds and EE bonds.... it's called diversification.... plus the only gold I have other than jewelry was gifted to me so I don't care how much it went down... my cost basis is zero.
Anonymous   |     |   Comment #19
To #14, do you have any bond funds? Do any of your bond funds contain treasuries? Because if so, these 0.1% I-Bonds are really competitive. 

Think about it...do the analysis...
Anonymous   |     |   Comment #21
pgx and vwehx
Anonymous   |     |   Comment #6
When I bought my I bonds in the 2001 2002 and 2003 I was able to buy $30,000 in my name and $30,000 in my wife's name... it's been a while but I think back then you could buy $30,000 in paper and $30,000 on line but can't remember for sure.
Anonymous   |     |   Comment #7
Those were the days when republicans were in control, I miss those golden days, any chance to turn the government back to the republicans?
alpha   |     |   Comment #11
You seem to miss that your Republicans brought us into all this.
Anonymous   |     |   Comment #22
Please explain your opinion. You seem to have the facts confused.
Anonymous   |     |   Comment #23
Comment #22 directed at #11.
Anonymous   |     |   Comment #8
Who the heck buys these with only a 10k cap??????
scottj   |     |   Comment #16
Me? I just wish I had started sooner, have bought $10k the last years. Most of us here on this are looking for as close to zero risk as possible and these Ibonds are just another option for that
Anonymous   |     |   Comment #10
The government keeping the fixed rate low means to me that they want to be sure that they pay a lower rate when the higher inflation rate increases in the future.  I am not interested in these IBonds any longer for inflation protection  when the government is controlling the total return by tweeking the fixed rate.
Anonymous   |     |   Comment #12
Actually, the I bond wont keep up with inflation (after taxes) if the fixed rate is less than 0.8%.
DCGuy   |     |   Comment #15
According to the Treasury Dept, most of the Savings Bond purchases are for gift purposes, not for "investment" purposes.  That was one reason why the limit was reduced.  The majority of the purchases were for a few thousand dollars. They want the "big money" investors to put their funds into the regular Treasury securities.  Back in the 1980's and 1990s, the payroll savings plan was often ignored and not competitive with other ways to build savings.  Now they even shut the program down a few years ago for employees, so they don't want yoru money anyway.
Anonymous   |     |   Comment #18
That's right.  The U.S. Treasury doesn't want to deal with us little people anymore, now that they don't need us.  It's not like it was back when they were campaigning  and asking everyone, as their patriotic duty, to purchase "War Bonds" to help finance WWII.
Anonymous   |     |   Comment #20
except these I-Bonds are a fantastic deal for the little person...

you should check out the market yields on 0-5 year treasuries...
Anonymous   |     |   Comment #25
"fantastic deal" ?  I don't think so! 
Andy bkm
Andy bkm   |     |   Comment #24
Hi, anyone use the I-Bond calculater found here? http://www.treasurydirect.gov/BC/SBCPrice

I have been using it for years & years but now it seems to have the incorrect information and I just want to confirm with you guys. For me it shows the I-Bond inflation rate for May-Oct 2014 is the same as the previous 6-month period (around 1.2%). I thought it was supposed to go up to 1.84% for May-Oct. The calculator only shows the new increased rate of 1.84% for the month of October 2014. I hope TreasuryDirect isn't trying to pull a fast one on us and only give us the previous inflation rate instead of the new increased rate for the next six months...... can anyone else confirm?
Anonymous   |     |   Comment #26
I have used it many times... it's to figure out how much your bonds are worth.
Anonymous   |     |   Comment #27
All those bonds are nothing more than a government scam.
andy bkm
andy bkm   |     |   Comment #28
Once again I am asking for someone to confirm by using the TreasuryDirect calculator (http://www.treasurydirect.gov/BC/SBCPrice) that it is now displaying incorrect interest rate information for I-Bonds. For me it shows the I-Bond inflation rate for May-Oct 2014 is the same as the previous 6-month period (around 1.2%). It is supposed to go up to 1.84% for May-Oct. The calculator only shows the new increased rate of 1.84% for the month of October 2014. Please can anyone else confirm?
Anonymous   |     |   Comment #29
It is my understanding that the new 1.94 is for new bonds issued in May 2014.  Bonds issued six months before (October 2013 issue date) will have the new inflation rate or component (1.84) beginning May 2014...but there is no interest for the last 3 months and they cannot be redemmed until held for 12 months in any event.  Call the Treasury dept
Andy bkm
Andy bkm   |     |   Comment #30
Ok, I figured it out. It seems that I Bonds changed when the new interest rate takes effect. While previously the new rate would take effect May & Oct but now they change according to a set schedule dependent on when the bond was issued : http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm#change

So for instance, for the bonds that I bought in Oct 2001 the interest rate used to change in May & Oct. Which is why when I used the TreasuryDirect calculator I expected my bonds to show an interest rate of 4.84%. But now since the Treasury Dept changed when the new rates take effect I won't see the new 4.84% rate until October but instead will still be getting the 4.20% I have been getting the past six months for another 5 months. This is rather strange that no news source has come out with the news that I-Bonds have changed when the new rate is applied. This must have just started this month.
Andy bkm
Andy bkm   |     |   Comment #31
This must have just started this month.