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 October 13th, the I Bond inflation rate is 7.12% (annualized). This is the highest inflation rate since the I Bond was introduced in 1998. Before today, the highest I Bond inflation rate was 5.70% that was set in November 2005. 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
- 7.12%, November 2021
- 5.70%, November 2005
- 4.92%, November 2008
- 4.84%, May 2008
- 4.60%, May 2011
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 an I Bond inflation rate of 7.12% and a fixed rate of 0.00%, the I Bond composite rate is easy to calculate. It’s equal to the inflation rate of 7.12%.
I Bond Rates:
Composite Rate: 7.12%
Fixed Rate: 0.00%
Inflation Rate: 7.12%
EE Bond Rate: 0.10% (EE Bond is guaranteed to double in value in 20 years)
Rates effective Nov 1, 2021 through Apr 30, 2022
The I Bond composite rate is very high compared to today’s CD rates from online banks, 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 much 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 7.12% inflation rate won't take effect on those I Bonds until April 2022. If you purchased I Bonds in July 1999 and January 2000, the 7.12% inflation rate won’t take effect on those I Bonds until January 2022. For more details, please refer to this Treasury Direct page.
Composite I Bond Rate = 10.23% to 10.85% 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 10.23% to 10.85%.
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
- 10.85% (3.60% fixed rate, issued May 00 - Oct 00)
- 10.64% (3.40% fixed rate, issued Sep 98 - Oct 98, Nov 99 - Apr 00, Nov 00 - Apr 01)
- 10.54% (3.30% fixed rate, issued Nov 98 - Apr 99, May 99 - Oct 99)
- 10.23% (3.00% fixed rate, issued May 01 - Oct 01)
- 9.19% (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 much higher than the current yield of the 20-year Treasury bond (1.98% 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 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 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)