May Savings Bond Rates - Record High I Bond Inflation Rate of 9.62%
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.
I Bond Rates for New Purchases
As I had calculated on April 12th, the I Bond inflation rate is 9.62% (annualized). This is the highest inflation rate since the I Bond was introduced in 1998. Before today, the highest I Bond inflation rate was 7.12% that was set last November. The list below shows the five highest I Bond inflation rates. The full history of I Bond rates can be viewed at this TreasuryDirect page.
Five Highest I Bond Inflation Rates (Annualized)
- 9.62%, May 2022
- 7.12%, November 2021
- 5.70%, November 2005
- 4.92%, November 2008
- 4.84%, May 2008
As I had expected, the I Bond fixed rate remains at 0.00%. The zero fixed rate has been common for I Bonds in this type of interest rate environment. During the seven years from 2008 to 2015 when the Fed held rates near zero, the I Bond fixed rate had been set to zero eight out of the 14 six-month periods. With rising rates, the odds are rising that the Treasury will increase the fixed rate in November. This TipsWatch post has an interesting discussion of the I Bond fixed rate and shows that the Treasury has a history of offering a fixed rate above zero when the 10-year TIPS real yield is above zero.
With an I Bond inflation rate of 9.62% and a fixed rate of 0.00%, the I Bond composite rate is easy to calculate. It’s equal to the inflation rate of 9.62%.
Summary:
I Bond Rates:
Composite Rate: 9.62%
Fixed Rate: 0.00%
Inflation Rate: 9.62%
EE Bond Rate: 0.10% (EE Bond is guaranteed to double in value in 20 years)
Rates effective May 2022 through October 2022
The I Bond composite rate is very high compared to today’s CD rates from online banks and credit unions, but it’s important to remember that the inflation rate on the I Bond changes every six months. Even if future inflation numbers go back to normal, that would still result in a competitive return for I Bonds over the next couple of years.
For those looking for a safe inflation hedge, I Bonds are a good choice. One nice thing about I Bonds is that the composite rate is guaranteed never to fall below zero. So if we get a period of deflation (which has occurred after periods of high inflation), the I Bond composite rate will never be lower than zero. That’s an advantage over Treasury TIPS which can go negative. With current TIPS yields, I Bonds are currently a better deal. The primary downside of I Bonds is the purchase limit. The maximum that an individual can purchase per year is $10,000 at TreasuryDirect and $5,000 in paper bonds purchased with an IRS tax refund (There are ways to buy more I Bonds. Harry Sit of The Finance Buff has a useful review of how a married couple could buy up to $65,000 in I Bonds in one calendar year by using business accounts and trust accounts.)
I Bond Rates for Current I Bond Holders
I Bonds purchased in the past will get six months of this new inflation rate. The start of this six-month period depends on when you purchased the I Bond. An I Bond's new inflation rate takes effect every six months after its issue month.
Here are a few examples of when the new I Bond inflation rate will take effect on old I Bonds. If you purchased I Bonds in April 2012 and October 2014, the 9.62% inflation rate won't take effect on those I Bonds until October 2022. If you purchased I Bonds in July 1999 and January 2000, the 9.62% inflation rate won’t take effect on those I Bonds until July 2022. For more details, please refer to this Treasury Direct page.
Composite I Bond Rate = 12.76% to 13.39% for I Bonds Purchased before Nov 2001
Those who purchased I Bonds from September 1998 through October 2001 have a fixed rate that ranges from 3.00% to 3.60%. Those I Bonds will have a composite rate for six months that ranges from 12.76% to 13.39%.
The following list shows the five highest composite rates that will occur on past I Bond purchases. These are active I Bonds that were purchased before November 2002.
Five Top I Bond Composite Rates
- 13.39% (3.60% fixed rate, issued May 00 - Oct 00)
- 13.18% (3.40% fixed rate, issued Sep 98 - Oct 98, Nov 99 - Apr 00, Nov 00 - Apr 01)
- 13.08% (3.30% fixed rate, issued Nov 98 - Apr 99, May 99 - Oct 99)
- 12.76% (3.00% fixed rate, issued May 01 - Oct 01)
- 11.72% (2.00% fixed rate, issued Nov 01 - Apr 02, May 02 - Oct 02)
EE Bond Rates
Yet again, 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%, which is higher than the current yield of the 20-year Treasury bond (3.14% at Friday’s market close).
Overview of 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 three months interest if redeemed within five years
- Interest is composed of fixed and inflation-based rate
- Fixed rate remains for life of bond
- The composite rate will never be less than zero
- Inflation-based rate changes every six months after issue month
- New rates announced every six months on first business day of November and May
- 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 calendar year and per social security number is $10,000 in TreasuryDirect and $5,000 in paper bonds purchased with IRS tax refunds (See The Finance Buff postabout extending limits via trust/business purchases)
But even if the rate is 0% for the second 6 month period you hold the bond, you will still do better than say a one year CD as long you don't continue to hold it if it starts paying below market rates.
True, which is why the end of April was such a good time to buy, as you had all the information you needed to pretty much know what 1 year of holding it would get you, thus eliminating that risk.
Per the TD website .. "If you use TreasuryDirect or the Savings Bond Calculator to find the value of a bond less than five years old, the value displayed reflects the three-month penalty; that is, the amount of the penalty has been subtracted already."
https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm
When I log onto my treasury direct and click on current holdings it tells me what my bonds are worth.
That serial number field is optional and has no bearing on the interest calculation. It's only for your own informational purposes, you can enter anything or nothing in the field (it doesn't check for a valid bond serial number). If you are looking at multiple bonds you could label them with that field as "bond 1", "bond 2" etc. if you wanted.
Mak: "The Calculator is for paper bonds only."
Correct, but as the rules for calculating interest are the same regardless of whether you bought paper or electronic, it can be used for electronic as well but you have to keep in mind it will limit you to entering a max value of 5k as that's the most in paper ibonds you can currently buy in a year (via tax refund money). so for a 10k electronic bond I'd suggest using the 1k value and multiply the result by 10.
Mak: "When I log onto my treasury direct and click on current holdings it tells me what my bonds are worth."
Indeed, that's probably the easiest way to find current value. The calculator is good for seeing what they were worth in previous months, or what they'll be worth a few months into the future (currently you can go as far as 11/2022 in the "value as of" field) should you be interested in that information.
The "Denomination" field in that calculator is based on the denominations of paper savings bonds. You may need to multiply results generated by the calculator to determine the value of your electronic bonds.
As to the bonds' values on a month-by-month basis (see your Comment #5): As I understand your comment (and apologies if I have misunderstood), you can determine the value for past months, and for certain future months, by adjusting the field denominated "Value as of".
https://eworkpaper.com/ibond.php
https://eyebonds.info/ibonds/index.html
I had found the second link before and lost it but the first link is even better because I can change the amount to any purchase amount for the calculation. I bought 2 bonds of odd amount this year in different months. I just need to remember to deduct the first 3 month interest which is the penalty if I cash any of them in before 5 years.
https://thefinancebuff.com/how-to-buy-i-bonds.html
There's a lot of factors to consider, and not everyone weighs those factors the same. (in short: it's complicated).
one big one to consider is:
if you hold for less than 5 years, you'll lose out on the last 3 months of interest, so you might want to hold on a little longer than a year depending on what the newest rate will be IE if you had a great rates for the two 6 month periods of that year but the next 6 months rate will be considerably lower, it may be better to wait for 15 months to cash out (instead of 12) so that the 3 month penalty is taken from months 13-15 at the lower rate instead of the higher rate of months 10-12.
That is interest does not start until the next month?
In fact, it's just the opposite: whichever day you purchase your iBonds during a given month, your interest begins on the FIRST of that very same month. (Purchase on the 25th, and it's as if your order went through a few weeks prior, on the 1st).
This is to your advantage, because you can still be earning interest in your funding account, right up until the day that Treasury Direct pulls your funds. So you are effectively earning interest on the same money in two places, at the same time!
Be careful on your timing, though. Note that, above, I said "towards" the end of the month. If you attempt to purchase on the very last day of the month (or even a day or two before, especially in a month that ends on or just after a weekend) you risk Treasury Direct transacting your iBond purchase in the following month. Which negates your "double interest" advantage!
So play it safe, and don't cut it too close. Schedule the funding of your iBond purchase to occur a few days prior to the month's end. On, say, the 27th or 26th, just to be sure. Or even earlier, if you're purchasing in a short month, like February :-)
"Second-to-last business day of the month is the latest you can submit a purchase that will actually occur that month. So for April that would have been 4/28."
On the flip side, when you wish to cash out (assuming you cash out before 30 years is up), doing so at the beginning of the month is best for the same reason. You get credited the whole month's worth of interest even though you only held the bond for a day or two of that month.
IT'S US.
For certain individuals (you people know who you are) I bonds help in addition with the dreaded and hated IRMAA. The IRMAA is so onerous and unfair that any help whatsoever is wonderful and welcome.
I bonds are IRMAA salve. I will be turning mine in only after hell freezes over.
I can't see any point in holding zero base rate I-bonds once the rates become uncompetitive with CDs except for the risk that they may be discontinued in the future so that you cannot buy them anymore (1). And holding them for that reason is very speculative.
(1) except for holding them after rates fall for purposes of strategically redeeming them for EWP or cash flow reasons.
IRMAA is a stealth income tax on seniors. I share your disdain for it. Congress was rightfully too ashamed to include it up front with the regular income tax so they hid it buried in the Medicare program.
The tax itself, which was imposed by Republicans, might or might not be reasonable depending on your viewpoint. But the method of administration is manifestly out of whack.
Hence I bonds, or anything else which can reduce one's reportable income, are a help with this monstrosity of a tax.
1. The IRMAA was also expanded by Democrats during the Obama administration.
2. Yes, things that provide income that that is not included for purposes of calculating IRMAA can be helpful to those who are subject to it, but only if the value of that exemption exceeds any deficiency in the underlying investment with respect to available similar options. Over the long term, considering the highly variable nature of I-bond returns and the limitation on purchase amounts, I don't think you can rely on this.
Givith with one hand and taketh away with the other.
However, one of the more controversial additions in that 1983 reform was the taxing of Social Security benefits (50%). This tax, which was originally designed to only impact upper-income senior households, was introduced to help raise additional revenue and avoid having to cut retired-worker benefits. That tax was expanded into a two tier tax (50% and 85%) in 1993. Not being indexed for inflation, more and more seniors have become subject to the tax as years have gone by.
The reform bill that included that provision passed the Democrat controlled congress on a bi-partisan vote and was signed into law by Republican president Ronald Reagan. The 1993 expansion, on the other hand passed the Democrat controlled congress without as single Republican vote and was signed into law by Democrat president Bill Clinton (incidentally, then Senator Joe Biden voted Yes on the bill)
The idea for the tax originally came from the bi-partisan Greenspan commission. I've seen nothing to indicate which member or members came up with the idea. But one can speculate given the nature of the change and the nature of the 1993 expansion vote (hint like today, one party's preferred fix was/is tax increases especially if they can claim it's going after the "upper income"/"rich" but which inevitably ends up bulls-eyeing the middle class whereas the other party's preferred fix was/is expenditure cuts)
But you can cash them in any time you wish, Jeff (without penalty after 5 years, as I'm sure you're well aware). Hence there is no one, fixed, hard set maturity date for your iBonds. Just a 30-year period, after which they effectively become dormant, without accruing further interest.
The only date on the paper bond that matters is the Issue Date. The Issue Date consists of a month and a year.
In the TreasuryDirect illustration, the Issue Date is November 2005. That bond, with 30 years of interest, can be redeemed on the first business day of November 2035 (Thursday, November 1, 2035), regardless of any other dates that appear on that bond.
Now on 2 hour wait, have already been disconnected once. Yesterday early afternoon told wait line filled, earlier this morn recording said # out of order, so not hanging up!
Any way around this debacle, or is this fiery hoop I must jump?
Already checked & no banks or brokerages that I could find sell the Series I.
Both email & "Account Authorization" form attached in email ONLY allow snail mail- with conflicting P O Box address.
I could not see the above required form on site: https://www.treasurydirect.gov/pdf/rs/acctauth.pdf
Page was solid black. Asked for email copy. Maybe the Treasury site copy of form allows email sending?
Did try calling early EST this morn & got recording several times that stated that line not functioning, try on site for needed information... Gaaa! Got thru to 2+ hour wait list about 10am PST. Was disconnected after about 1 hour- had to go to square one & call back for another 2+ hour wait.
Results of that call ??embarrassed to say...went to another room JUST as REAL LIVE service person said: "Can't hear you, so call back later" As I yelled "I'm here", click.
Warning to others: If told "estimated wait time is 30 minutes" DO NOT LEAVE ROOM!
I think problem is both increased demand and TD’s archaic processes and rickety system. Citing Treasury Dept. records, the Wall Street Journal recently reported that I Bond sales totaled $11 billion over latest 6 months, compared to $1.2 billion for comparable period in prior two years. (No link as article is behind paywall.) Current TD processes are too reliant on paper, snail mail and phone interaction.