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Disappointment Continues: Treasury Announces New Savings Bonds Rates


Disappointment Continues: Treasury Announces New Savings Bonds Rates

The Treasury released the new I Bond and EE Bond rates today. Both rates are disappointing. The Treasury decided to keep the I Bond fixed rate at 0%. As I calculated on Monday, the I Bond inflation rate is negative (-1.60%). Thus, the new I Bond composite rate is 0%. The composite rate is typically the sum of the fixed rate and the inflation rate, but it has a floor rate of 0%.

The Treasury increased the EE Bond rate from 0.10% to 0.30%. This new rate is still too low to make the EE Bond purchase worthwhile 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 about 3.5%.


I Bond Rates: Composite Rate: 0%, Fixed Rate: 0%, Inflation Rate: -1.60%

EE Bond Rate: 0.30%

Rates effective May 1, 2015 through October 31, 2015

I had hoped the Treasury would raise the I Bond fixed rate. Less than two years ago the fixed rate had been 0.20%. With a negative inflation rate and with talk of a Fed rate hike later this year, it seemed reasonable for the Treasury to at least raise the fixed rate to 0.20%. That would at least provide a little incentive to buy an I Bond.

With a negative inflation rate and with a fixed rate of zero, I can’t see any benefit of buying an I Bond. Why lock in your money for six months of zero percent? Why not just keep it in your checking account? If you want to buy an I Bond, it makes sense to wait until November when the next I Bond rates take effect. The fixed rate can’t be any lower, and at the very least, the inflation rate will likely be positive.

Current I Bond Holders

If you have old I Bonds, you'll have six months of rates that range from 0% (for I Bonds with a fixed rate of 1.60% or less) to 2.00% (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 six months with the -1.60% 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 -1.60% inflation rate won't take effect on that I Bond until October 2015.

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
  • Maximum purchases per year and per social security number is $10,000 in TreasuryDirect and $5,000 in paper bonds purchased with IRS tax refunds (This excludes trust/business purchases) - 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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Anonymous   |     |   Comment #1
Ken, are you saying that older ibonds will have a negative 1.6% rate for six months b/c of this change (triggered on applicable 6 mo. Anniversary) And, if so is the 3 month interest charge for redemption within 5 years of issuance is such that there would be no charge (erasing the negative impact of current/new rate).? Thanks
Cracker   |     |   Comment #4
They will have a zero percent rate for 6 months.  Unfortunately, even for those of us with bonds having a high fixed rate, we will still get penalized by a 1.6% loss.  I have bonds with a 3%, 1.2% and 0.7% fixed rate.  The latter two will pay 0%, and the first will only pay 1.4% for the next six months.  I remember several years ago even my 3% bonds were paying zero due to deflation.
Cracker   |     |   Comment #5
I just looked it up.  The last time the rates were negative was May 2009.
Cracker   |     |   Comment #20
Hmmm.  I just check my bonds with Savings Bond Wizard and it says that my 3% fixed rate bonds are earning 1.38% instead of the 1.4% I calculated.  Not sure what accounts for the difference.
DCGuy (anonymous)   |     |   Comment #2
Savings Bonds rates have been disappointing since I began working for the Government 35 years ago.  They were pitiful when compared to money market rates back in the early 1980s.  Then all of a sudden they became "competitive" with the 2008 near financial collpase.  The main attraction for owning them is to give them out as gifts or for educational purposes.  If you buy them for your kids at $10K per child for up to 18 years, then that should provide the bulk of the college costs especially since some tuition rates are now over $50K per year.
Anonymous   |     |   Comment #3
So I want to use this 0% period as an opportunity to get out of i-bonds and be penalized for 3 months of 0% interest. I have i-bonds that were issued in May 2011. I understand that from May 1, 2015 to October 31, 2015, I'll be earning 0% interest. Does this mean that I can redeem my i-bonds on July 1, 2015 and be penalized for 3 months of 0% or do I need to wait until August 1, 2015 for this? I know that interest is earned on the first day of each month so that's why I'm a little unclear on this.
Cracker   |     |   Comment #6
If you cash them in on July 1st, you will be penalized for 0% June and May, and 1.49% for April.  Wait until August 1st and you will be penalized 0% for July, June and May.
Cracker   |     |   Comment #7
One correction.  Interest is earned on the 1st for the previous month.  In other words, the interest credited on May 1st is for April 1st through April 30th.
Anonymous   |     |   Comment #9
I think you're incorrect on how interest is earned. Ken has stated something similar to the following in his numerous postings on I Bonds: "I Bonds increase in value on the first day of the month. So on May 1st, you'll earn the interest for the full month of May. So for maximum return, it's best to buy I Bonds near the end of the month and redeem them early in the month."
Anonymous   |     |   Comment #10
No, I believe you are incorrect and the other fellow is right.  Your bond increases on the first of the month, in recognition of the previous month. 
Cracker   |     |   Comment #14
You're misunderstanding what Ken wrote.  If you buy an I-bond on May 31st, you would still earn interest as if you bought it on May 1st.  That interest (currently zero) would be credited to you on June 1st.
Anonymous   |     |   Comment #16
I guess, in other words: If you sell an I-bond on May 31st or May 1st or May 3rd, you would still lose interest for the 3 months prior to the sell date, if I-bond was held for <5 years.
Anonymous   |     |   Comment #8
This should be a lesson learned.  Never loan money to a borrower who also has control of the lending rate and can manipulate and lower the interest rate that they will pay you.
Anonymous   |     |   Comment #13
I swear, it sure doesn't feel like -1.6% inflation to me.
Anonymous   |     |   Comment #15
Yes, Virginia there is a Santa Claus...just don't know where he is...this month. He's not at the Fed
Anonymous   |     |   Comment #17
For the next 6 months, is there any reason to buy an I-bond??!? I'd rather get 0.9% taxable interest on my money than 0.00%!!
Anonymous   |     |   Comment #18
Savers are still being punished for being naive and lending their money to the FEDs without interest received. The inflation will be 0-2% for the next decade, USA has almost $20 trillions in debt to refinance, guess who will pay the penalties?
FredSanford (anonymous)   |     |   Comment #19
keep in mind , that even if you cash out I-bonds during this zero rate period, you will still be taxed on any built up interest, instead of deferring that.   I doubt it comes to much .

 The war on savers continues.
Anonymous   |     |   Comment #21
I bet sales of new i bonds have plunged--a zero rate is an insult.
Anonymous   |     |   Comment #22
I'm redeeming all my i bonds.
Anonymous   |     |   Comment #23
Make sure you look at the current/effective rate on those old bonds before cashing...I was pleasantly surprised (especially given alternative rates out there, etc.)...but I do not plan to buy any new bonds within the current 6 month window, i.e. looking forward to Nov. 1
Anonymous   |     |   Comment #24
 Let me recall, 0% is consistent with islamic prohibition against the earning of "interest." ISIS wins here.
Anonymous   |     |   Comment #25
Anyone seen the cpi index that may be the basis for the Nov 1 Ibond (inflation rate) as well any estimates on that rate?
Anonymous   |     |   Comment #26
I purchased I bonds in October, 2003.  They are now earning zero interest.  Is that correct?
Anonymous   |     |   Comment #27
I believe they will earn that until April.  I had redeemed this year some that were 3 months of 0 interest (remember 3months penalty for withdrawing within 5 years).  In Nov. I purchased the max ebonds with 1.64 for six months.  If the May 1 new rate is "good" I'll buy this year's max in April and get that 1.64 for six months which would then go to that new May 1 rate for 6month.  If the May 1 rate isn't "good", I'll wait until Oct and see what the rate is going to be on Nov 1.  On and on.  One has to stay on top of it!!!