November Savings Bond Rates - I Bond Fixed Rate Remains at 0%

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The Treasury released the new I Bond and EE Bond rates on Monday. New rates are announced on every first business day of November and May.

The I Bond fixed rate remains at 0.00%. This was expected due to the Fed’s zero rate policy with no end in sight combined with the ultra low Treasury yields. 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 many times.

As I had calculated three weeks ago, the I Bond inflation rate is 1.68% This results in a composite I Bond rate of 1.68%.

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 (1.41% as of yesterday).

Summary:

I Bond Rates:
Composite Rate: 1.68%
Fixed Rate: 0.00%
Inflation Rate: 1.68%

EE Bond Rate: 0.10% (guaranteed to double in 20 yrs)

Rates effective Nov 1, 2020 through Apr 30, 2021

The I Bond composite rate is 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.

Due to the Fed’s new inflation strategy (in which they will likely keep policy rates near zero even if inflation exceeds its 2% target for a period of time), the I Bond has become more appealing as an alternative to CDs. It’s possible that a period of low inflation would make I Bonds unappealing. However, future inflation would have to be very low for I Bond rates to offer worse returns than today’s CD rates. If inflation remains low, the Fed will almost certainly maintain its zero rate policy and CD rates will probably stay at the current record lows, or even fall lower. On the other hand, if inflation rises, the I Bonds will directly benefit. It will probably take longer for higher inflation to result in higher CD rates.

One good thing about the I Bond is that the composite rate is guaranteed never to fall below zero. So if we get deflation, the I Bond composite rate will never be lower than zero. That’s an advantage over Treasury TIPS which can go negative.

Of course, for many savers, I Bonds can’t be a complete replacement for CDs due to the annual purchase limits. An individual can only purchase a maximum of $10,000 of I Bonds at TreasuryDirect.gov per calendar year. An additional $5,000 (paper I Bond) can be purchased using your federal income tax refund. Note, EE Bonds have a separate purchase limit of $10,000. Thus, an individual can buy $10,000 of I Bonds and $10,000 of EE Bonds at TreasuryDirect.gov per calendar year.

Current I Bond Holders

If you have old I Bonds, you'll have six months of rates that range from 1.68% (for I Bonds with a fixed rate of 0%) to 5.31% (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 1.68% 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 2015, the 1.68% inflation rate won't take effect on that I Bond until April 2021.

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
  • The combined rate will never be less than zero
  • 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
alan1
  |     |   Comment #1
Thanks, Ken.

For people unfamiliar with savings bonds, please be aware that "issue date" is a technical term. It is not the date on which the bond is issued. It does not consist of a month, day and year. It consists of a month and a year. See upper right at
https://www.treasurydirect.gov/indiv/help/bc/bc_savings_diagram.htm

Whether you buy the bond on November 7, 2020 or November 21, 2020, your "issue date" will be November 2020.

So, you can purchase a bond in late November 2020 and redeem it in early November 2021 and still be redeeming it within 12 months of the issue date. You do not actually have to hold on to the bond for a full 12 months. I don't know how late in the month you can buy the bond through Treasury Direct and still get that month's issue date. (I've bought very late in a month, but never on the last day of the month.)

But there's no reason to buy the bond early in the month. And when you redeem the bond, it's worthwhile to redeem it at the beginning of the month.
Rickny
  |     |   Comment #2
The Treasury decimated the bond program. I remember buying I bonds with my rewards credit card. The 10K limit on each type of bond and the additional 5k if you get a tax refund is low.

Ken, I didn't know you the limit on bond purchases were 10k for each type of bond. So if I wanted I could buy a 10k I bond and a 10k EE bond each year. Thank you for the education.
P_D
  |     |   Comment #3
Right. But why would you want to with EE bonds paying 0.10%? Even in high tax NY, that's only equivalent to about 0.35% on a 5 year CD. In lower tax states, it's equivalent to an even lower rate.  Yes, you have a rate guarantee for 15 additional years after that, but if 0.10% sounds like a good rate by 20 years from now your money will be the least of your worries.

I already unwillingly subsidize far too much reckless government spending with my taxes.  No thanks to voluntarily taking below opportunity rates to subsidize even more.  That's not my definition of patriotism.
blazer9
  |     |   Comment #4
It is a Long wait that is for sure.
My time is now 29 years, end of next year EE will be a good payday.
alan1
  |     |   Comment #5
Ken's article is correct. Do not be misled by Comment #3. As Ken noted:

"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 (1.41% as of yesterday)."

So, the bond can be held for twenty years; and then redeemed at the twenty-year mark; and winds up with an annual return of about 3.5%. As Treasury Direct states, in a link contained in Ken's article:

"Treasury guarantees that an EE Bond will be worth at least its face value after the first 20 years. If an EE Bond does not double in value (reach its face value) as a result of applying the fixed rate of interest for those 20 years, Treasury will make a one-time adjustment at the 20-year anniversary of the bond's issue date to make up the difference."

https://www.treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds_eeratesandterms_eebondsissu...

Whether "0.10% sounds like a good rate by 20 years from now" is neither here nor there. The key is that you will double your money if your hold the bond for twenty years and then redeem the bond.

The decision as to whether to purchase EE bonds should be based on accurate information, not on disinformation disguising itself as a "definition of patriotism" (cf. Mark Twain).
P_D
  |     |   Comment #6
Right assuming the government lasts 20 years with the kind of irresponsible spending being discussed. They'll gladly pay you Tuesday for a hamburger today. ... and in the meantime, good luck living on 0.10% for that 20 years.
alan1
  |     |   Comment #8
Comment #6 states: "good luck living on 0.10% for that 20 years."

The poster simply does not understand how Series EE savings bonds work. Interest is not paid periodically. It is retained in the bond until it is redeemed (or until maturity). It is a long term investment -- no one is "living" on periodic interest payments from those bonds.

Repeated postings about savings bonds consisting of factual falsehoods and political invective -- purely predatory.
GreenDream
  |     |   Comment #11
#3, as others pointed out the "why" is as a extremely low risk holding for the long term IE holding for the 20 years for the guaranteed doubling (IE 3.5% annualized rate), which is better than what most banks have been offering for the past 12 years and likely much better than what they will be offering for the next few (IE if you had money you didn't need access to for 20 years back in 2008, you'd likely have done better putting it in an EE bond than in the bank just on the doubling at 20, certainly would have been a lot less hassle than chasing yield at various banks over that 20 years)

As for "assuming the government lasts for 20 years", well they've been issuing saving bonds for nearly a hundred years now. If you don't think the government will last another 20, frankly you might as well just rip up your dollars because if the government is in such poor fiscal shape as to not be good for redeeming savings bonds, your dollars will be totally worthless as well.
jofr4646
  |     |   Comment #7
o.k., I have heard and read many times that 0% interest rates will help the economy, . . . now can you explain it to me one more time? My c.u. is paying .10% for savings and charging 13.99% for a holiday loan of 1,500 to its members. Now which end of the economy am I ?
GreenDream
  |     |   Comment #12
The end that doesn't shop around. You can find much better rates than that for loans.
ichaelm
  |     |   Comment #13
You can also do far better than 0.10% on savings - that's what this website is all about. Read Ken's biweekly liquid accts summary.
GreenDream
  |     |   Comment #14
Indeed (and considering what blog we are on, it rather goes without saying that) you can find better savings rates than 0.10%, though I don't know that I'd categorize it as "far better" these days considering most banks/CUs are offering less than 1% rates. Certainly the bigger disparity in the OPs example was the loan rate, which he could easily knocks 5 or 6% off just by looking around at other FIs.
#10 - This comment has been removed for violating our comment policy.
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