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New Savings Bonds Rates - I Bond Fixed Rate Stays at 0%

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New Savings Bonds Rates - I Bond Fixed Rate Stays at 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 continues to be 0%. As I had calculated two weeks ago, the I Bond inflation rate is 1.96%. This results in a composite I Bond rate of 1.96%.

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: 1.96%
Fixed Rate: 0%
Inflation Rate: 1.96%

EE Bond Rate: 0.10%

Rates effective May 1, 2017 through October 31, 2017

I’m disappointed that the Treasury decided to keep 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 seven years is 0.20%. There were two periods with this rate. The first was from May to October 2010, and the second was from November 2013 to April 2014. For most of the time in the last seven 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 1.96% (for I Bonds with a fixed rate of 0%) to 5.63% (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 1.96% 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 1.96% inflation rate won't take effect on that I Bond until October 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
DCGuy
DCGuy   |     |   Comment #1
I haven't purchased a single savings bond since they terminated the Payroll Savings Plan at work.
deplorable 1
deplorable 1   |     |   Comment #2
I didn't even know they still had the EE bond. No wonder just look at that pathetically low interest rate .10% lame. The last time I bought one I think the rate was 4% or better for some birthday gifts for my nephews. I'm sorry but the federal government really needs to start encouraging saving by offering a higher interest rate as the amount you can invest is already severely limited. They could do much better.
jennifer
jennifer   |     |   Comment #3
I simply adore bonds. The rate may be zero, however, the money is protected by the entire us government. It's still a good deal to keep the money safe.
deplorable 1
deplorable 1   |     |   Comment #4
CD's are all FDIC or NCUA protected anyway up to $250,000. I'm earning 2.5% in a CD currently and that blows the ibond away. Plus the the government could say inflation is 1% or 1.5% next while CD's might be up to 3% FDIC insured by then. Now if the ibond was 1-2% plus inflation I would grab it.
Bozo
Bozo   |     |   Comment #6
Deplorable, while you and I seldom agree, I fully concur on the mirage of the IBond. The Federal Government has the power to state the inflation rate applicable to IBonds. The government, in its infinite wisdom, keeps the rate low (perhaps artificially low) to suppress yields on IBonds, and COLAs in general. COLAs jack up payments to Social Security recipients, military, and others whose payments are tied to COLA. Stated plainly, would I ever trust a debtor (the Feds) to determine the compensation rate (the COLA or rate of inflation), on its debt to me? Goodness gracious, I would not.
deplorable 1
deplorable 1   |     |   Comment #19
Actually I agree with you quite a bit Bozo right up until it gets political. For some reason when politics is concerned it seems that all logic gets thrown out the window.
Bozo
Bozo   |     |   Comment #5
While the doubling effect of the EE is tasty, demographics work against it. A person in his or her 40's might expect to see that EE bond purchased today double in twenty years. A person in his or her 60's, the odds get tighter.* Hint to Secretary Mnuchin: if you really want us old folks to buy savings bonds, stop making it so hard and rates so uncompetitive.

*Jack is 65. He contemplates buying a EE bond. It will double in value when Jack is 85. Will Jack then be alive? Will Jack even remember he has a EE bond? Does TreasuryDirect track down heirs of . . .. Well, you get my drift.
DCGuy
DCGuy   |     |   Comment #7
You raise a very good question. Since all bonds (except the tax refund type) are not paper format, what happens if the owner dies and never provides the paper trail purchases to his/her heirs? Does the bond (upon maturity) eventually get disposed of like a dormant bank account (i.e., the balance goes back to the Treasury Public Debt as a donation)?
Bozo
Bozo   |     |   Comment #9
DCGuy, it's more an issue of state escheat law (which gets complicated)..

Complicated is probably an understatement.

Example: Jack bought a EE bond at age 65. He dies at age 80. His EE bond would double at age 85, but he's dead, Jack has no kin, so his assets escheat to the state.

You be the Judge.
DCGuy
DCGuy   |     |   Comment #11
The question is whether the US Treasury is obligated to do the same as a bank with regards to escheatment of the accounts. Will they send a notice of final maturity to the registered owner? I doubt that because they do not do that for the paper issued bonds. Money in a dormant account is not an obligation to the bank, so they send it to the state of the account owner. However, savings bonds are obligations of the US Government, so if you cannot locate the owner or beneficiary, it would be logical for the issuer to retain the money connected to the obligation.
Bozo
Bozo   |     |   Comment #12
DCGuy, I suspect the simple answer is "no". If you die as a creditor, it's up to your heirs.
Nothing
Nothing   |     |   Comment #13
Guy, last time I looked it seemed simple to use Treasury rules for heir to claim funds...generally supersede state law. One may want to revisit poa provisions at Treasury.
Bozo
Bozo   |     |   Comment #8
I've never been a fan of IBonds. Every time I offered a platform to an IBond advocate, the advocacy fell flat. OK, here's your chance. Explain to me, in plain English, why I should buy an IBond. Skip over the "no state tax" part; I get that.
n/a
n/a   |     |   Comment #17
Any benefit seems moot given the very low purchase limit.
Alcoholics_Anon
Alcoholics_Anon   |     |   Comment #27
I look at iBonds as an alternative to 5 year CDs (which I'm not inclined to purchase at the moment). Last fall I purchased 10K of the iBonds because they were yielding 2.76%. That was better than any 5 year CD available at that time. Now they're yielding 1.96%, which is less than 5 year CDs.

During deflationary times, CD's have a marginally better yield. For example, 5 years ago most 5 year CD's yielded around 2.0%. The TIPS and iBonds I own that were purchased 5 years ago have yielded about 1.4% during that period. So, for the last 5 years TIPS and iBonds have been dogs.

The whole point of TIPS and iBonds is to protect principle from "unexpected" inflation. The 5 year TIPS are yielding around 0.1%. The iBonds fixed rate is 0%. At the moment this means that both of these are a pure inflation play.

They are also a deflationary play. iBonds can never yield less than the fixed rate. In deflationary times, this protects the principle value. If you buy TIPS at or below par, your principle is also protected if you hold the bond to maturity. If you sell before maturity, you could lose principle.

Since I'm retired the only financial goal that I have is to preserve principal with zero risk. Both TIPS and iBonds are designed to do just that. This leads into a discussion of how the government measures the inflation rate and whether or not it is rigged.

The BLS site is totally transparent on how it derives the inflation indexes. In my opinion, it's the best indicator of overall inflation that exists. For TIPS and iBonds this is the CPI-U. This stands for "'Consumer Price Index For All Urban Consumers".

As a result of that it may not reflect any particular personal inflation rate. For example, if you live in a rural area, your inflation rate is probably lower (so don't complain about it). If you're a retiree, your personal inflation rate may be higher due to medical expenses. Or not, due to a paid-off mortgage.

The CPI-U is based upon a basket of goods that have to represent a wide range of products. There's components for the normal stuff like food, gas and housing expenses. But, it also includes other items like educational and even death-related expenses.

Most of the "inflation conspiracy theorists" haven't taken the time to research the components of the CPI-U, how they are weighted - or even how the prices are derived. I have, and feel that they do a pretty ****ed-good job of measuring overall average inflation in the urban areas of the US.

Whether or not they're a better risk-free choice over CD's is another matter. If the inflation rate outpaces the rate at which interest rates rise, they will be clear winners. That started happening last year even before the "Trump effect" came into play.
alan1
alan1   |     |   Comment #29
The claim that "iBonds can never yield less than the fixed rate" is utterly false. They can and have paid less than the fixed rate. They cannot pay less than zero. The I bond rate has two components -- the fixed rate and the inflation rate. According to the Treasury Direct website:

"The combined rate will never be less than zero. However, the combined rate can be lower than the fixed rate. If the inflation rate is negative (because we have deflation, not inflation), it can offset some of the fixed rate.
"If the inflation rate is so negative that it would take away more than the fixed rate, we don't let that happen. We stop at zero."

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm
Bozo
Bozo   |     |   Comment #31
Jimbeau, thanks for taking the time to make the argument for IBonds. I guess my reluctance might be due to my own ignorance. I really, truly, don't fully comprehend the IBond as an investment vehicle. The Warren Buffett rule comes to mind: "if you don't understand it, don't buy it." I dabbled in a TIPS ETF and Vanguard's TIP mutual fund some years back, then bailed when I realized I really had no idea what I was doing. Made a few bucks on each trade, so can't complain. But I realized I was way in over my pay-grade.
Mak
Mak   |     |   Comment #10
Half my I bonds have a base rate of 1.60% and the other half are 3%, I would never buy I bonds with a zero base rate.
DOA
DOA   |     |   Comment #14
I agree and another negative about IBonds is you can only name one primary beneficiary.
Nothing
Nothing   |     |   Comment #15
If Treasury wants citizens to purchase and hold, the rates and trend need to change. For those looking for a short term place to park funds, 2% for 1 year cannot be beat! See it for what it is and move on! :-)
Mak
Mak   |     |   Comment #16
It's a 6 month rate not a year plus they can't be redeemed within 12 months of issue date and you lose 3 months interest if redeemed within 5 years.
bob
bob   |     |   Comment #18
Since you have to pay taxes on the interest, the I bond with a fixed rate of 0% really doesn't keep up with inflation.
deplorable 1
deplorable 1   |     |   Comment #20
Good point bob. It's not really living up to it's name. Talking about taxing interest it would be nice if the government in it's infinite wisdom would encourage saving by making interest non taxable. Romney proposed this in his campaign. It is really a form of double taxation as every dollar that is in savings accounts has already been taxed once in the year that it was earned. The savings rate actually went negative just before the housing crisis and I don't think that is a coincidence.
Att
Att   |     |   Comment #21
Munis bonds in most cases are tax free Federal, State and local. Wonder why the Federal government doesn't do the Same? Guess you have the full faith of the US backing the bonds.
davidlee
davidlee   |     |   Comment #22
I wish we had Mitt right now instead of Trump but the best person sometimes falls through the cracks
deplorable 1
deplorable 1   |     |   Comment #23
I hear you. I can't believe Obama got elected twice and beat Romney. I wonder how many people regret that decision now. The one thing in Trump's favor though is that he is not a career politician and IMO that's a good thing.
jane
jane   |     |   Comment #24
Obama promised everything under the sun like trump did.
I'm beginning to think that's the only way to get elected now
Bogey
Bogey   |     |   Comment #26
It always has been, jane. Tell the voters what that want to here and promise them the impossible. That's all it takes. The voting public is so gullible. However, much better President Trump than what the alternative would have been.
zzzzz
zzzzz   |     |   Comment #30
Where have you been the last 100 days?
Bogey
Bogey   |     |   Comment #32
I've been watching all the left wing liberals throwing hissy fits and tantrums. And still waiting for all the Hollywood "elitists" and TV "talking heads" to leave our country like they said they would if Trump was elected President. Just goes to show what a lying bunch they really are.
Bozo
Bozo   |     |   Comment #33
Bogey, as a registered (and life-long) Republican in a deep-blue district in a deep-blue state (CA), I must say Trump is offensive. That he claims to be a Republican is even more offensive.
deplorable 1
deplorable 1   |     |   Comment #35
Hey Bozo I live in Michigan where we have a so called Republican Rick(I raise taxes like a Democrat)Snyder. This guy hit us with a pension tax, higher gas tax and higher car registration fees. He is the definition of a RINO. He is so bad I actually voted Democrat last election(locally) because the Democrat was more conservative! As far as Trump is concerned people don't like him based 100% on his harsh personality but if you look just at policies he's really pretty conservative. People liked Obama's personality but I found him offensive because of his policies.
jane
jane   |     |   Comment #38
Trump and his family have been dems all their lives and still are. That's ok if he would just grow up and get schooled on health insurance.
deplorable 1
deplorable 1   |     |   Comment #41
Trump isn't half as bad as liberals are trying to make him out to be. You have to remember he has 20 trillion in debt to manage and everyone seems to want more and more from the government yet will complain if the deficit and debt go up. Talk about caught between a rock and a hard place. He's got a tough job and I don't envy him. I just wish the media and liberals would cut him a little slack just as they wanted us conservatives to with Obama.
Dunmovin
Dunmovin   |     |   Comment #42
Perhaps the liberals will "allow" Trump (even though Congress controls appropriations) to have more debt.
zzzzz
zzzzz   |     |   Comment #25
Not if your in a zero tax bracket. Now that I'm retired I am.
Really?
Really?   |     |   Comment #28
I would not touch an EE bond.......Because I think the government will change the rules later and you will never double your money. No way. Look at the debt. They can never afford it.
RON PAUL 2020
RON PAUL 2020   |     |   Comment #36
ISRAEL BONDS,,,,chicken soup for what ails you.
Nothing
Nothing   |     |   Comment #37
No sinking fund, ron
A.JESUIT
A.JESUIT   |     |   Comment #39
how about VATICAN STAMPS?
NEG RATES NOW!
NEG RATES NOW!   |     |   Comment #40
Nothing,,what's your pick to click?