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.