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New Savings Bonds Rates - I Bond Fixed Rate Falls to 0%

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New Savings Bonds Rates - I Bond Fixed Rate Falls to 0%

The Treasury released the new I Bond and EE Bond rates today. New rates are announced on every first business day of May and November. Unfortunately, the rates continue to be disappointing. The I Bond fixed rate fell from 0.10% to 0%. As I had calculated two weeks ago, the I Bond inflation rate is 2.76%. This results in a composite I Bond rate of 2.76%. On the plus side, the I Bond inflation rate is a big improvement over the last rate when it was only 0.16%.

The Treasury kept the EE Bond rate the same at 0.10%. With this low rate, 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%.

Summary:

I Bond Rates:
Composite Rate: 2.76%
Fixed Rate: 0%
Inflation Rate: 2.76%

EE Bond Rate: 0.10%

Rates effective November 1, 2016 through April 30, 2017

I’m disappointed that the Treasury decided to reduce the I Bond fixed rate to 0%. Unfortunately, a zero I Bond fixed rate has been common. The highest the fixed rate has been in the last six years is 0.20%. That was from November 2013 to April 2014. For most of the time in the last six years, the fixed rate has been 0%.

Current I Bond Holders

If you have old I Bonds, you'll have six months of rates that range from 2.76% (for I Bonds with a fixed rate of 0%) to 6.41% (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 2.76% 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 2.76% inflation rate won't take effect on that I Bond until April 2017.

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.

Comments
Anonymous
Anonymous   |     |   Comment #1
I guess for next year I may wait until May to see if the fixed rate comes in higher than 0.
DGuy
DGuy (anonymous)   |     |   Comment #2
With that explosion in the southeast oil pipeline, gas prices are going to go up.  Of course, that will not affect the I-bond inflation rate.
Anonymous
Anonymous   |     |   Comment #3
Of course not.  According to the government drones there is no such thing as inflation.
Anonymous
Anonymous   |     |   Comment #4
I bonds do not interest me anymore.  The fixed rate will probably always stay at or near zero from now on.
Anonymous
Anonymous   |     |   Comment #5
Great...maybe the rate will go up with less demand!  Can someone put a positive spin on it, I.e. Where are u going to get equivalent or better rate for gov't issued for one year...the min hold period?  Where u parking short term $?
Anonymous
Anonymous   |     |   Comment #7
Inflation rates will be adjusted untrully to favor not paying you any or very low interest.  These Ibonds are beginning to turn in to an average low interest rate loan to the government.
Anonymous
Anonymous   |     |   Comment #6
This is what I expected from the government 0%. Don't take the bait they will most likely adjust the rate lower in future years. I just bought some more REIT's that pay out a average of 12% monthly dividends.
Anonymous
Anonymous   |     |   Comment #8
in iowa or dc ?
Anonymous
Anonymous   |     |   Comment #9
Is this a "non traded REIT"?If so the following will affect your return:

Fees to purchase or redeem

  • our initial investment in a non-traded REIT is not guaranteed and may increase or decrease in value.
  • Do not invest solely based on distributions the non-traded REIT may currently be generating. Distributions can be suspended for a period of time or halted altogether. Unlike interest from a CD or bond, REIT distributions may be funded in part or entirely by cash from investor capital or borrowings—leveraged money that does not come from income generated by the real estate itself.
  • Redemption policies can change, making it extremely difficult to get money out of the non-traded REIT when you need it.
I have seen many people get burned buying non traded REITS
Anonymous
Anonymous   |     |   Comment #10
"pay out a average of 12% monthly dividends."  Misleading!  Interest rate that is APY is...?
Anonymous
Anonymous   |     |   Comment #12
I hope you're getting that high of a return because you're taking a massive risk with your money......No thanks
Anonymous
Anonymous   |     |   Comment #13
Who said non-traded reit? I own MORL, ARR and DRA all publicly traded and pay monthly dividends. I made 25% APY in dividends alone in MORL last year. You minimize the risk with diversification. Investing 101. I also am 55% in cash so I can afford more investment risk.
Anonymous
Anonymous   |     |   Comment #14
I believe MORL is a mortgage REIT. They invest in mortgage securities. I would say they are not a conservative investment.
Anonymous
Anonymous   |     |   Comment #15
Owning 3 REITs is not diversified investing. Different assets such as stocks, bonds, REITs, cash, Real Estate etc would be a diversified portfolio. All investments have pros and cons.
Anonymous
Anonymous   |     |   Comment #16
I have other investments also like utilities, energy, bonds ect. all paying monthly dividends. You can also make the mistake of over diversification which just ends up lowering your yield as you just mirror the overall market. I think I have now doubled my money in MORL which makes it a pretty safe investment as it would have to drop 50% for me to break even.
Anonymous
Anonymous   |     |   Comment #17
MORL is still risky. You have doubled your money but it is not a conservative investment and probably not suitable for the people here on DA
Anonymous
Anonymous   |     |   Comment #18
Think 1987 and 2001 and 2009-10
Anonymous
Anonymous   |     |   Comment #19
I find dividend paying stocks to be much less risky than stocks that pay no dividends. During the last market crash I just banked my dividends and later dollar cost averaged down by buying more shares at lower prices. Stocks then recovered and I now earn more dividends every month with the extra shares. You only lose money if you panic sell or a company goes out of business.
JimDavis
JimDavis   |     |   Comment #21
 One clever strategy is to sell before the price collapses, preferably at the high.  Many yield seekers do just that. Only a few lose more than they ever earned in interest.
#sar #casm
#11 - This comment has been removed for violating our comment policy.