The Treasury released the new I Bond and EE Bond rates on Friday. New rates are announced on every first business day of May and November.
As I had feared, the I Bond fixed rate fell from 0.20% to 0.00%. With the Fed cutting rates to near zero and with Treasury yields falling to record lows in the last couple of months, I had anticipated this drop in the I Bond fixed rate. 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 1.06%. This results in a composite I Bond rate of 1.06%.
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 (1.04% as of yesterday).
I Bond Rates:
Composite Rate: 1.06%
Fixed Rate: 0.00%
Inflation Rate: 1.06%
EE Bond Rate: 0.10%
Rates effective May 1, 2020 through October 31, 2020
The I Bond composite rate is low compared to today’s CD rates from internet banks, but it’s important to remember that the inflation rate on the I Bond changes every six months. If the inflation rate averages 2%, that would result in an average composite rate of 2.00%, which is competitive compared to today’s long-term CD rates. Of course, inflation could average lower than 2.00% for several years due to the economic problems from the coronavirus pandemic. 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.
Current I Bond Holders
If you have old I Bonds, you'll have six months of rates that range from 1.06% (for I Bonds with a fixed rate of 0%) to 4.68% (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 1.06% 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 2012, the 1.06% inflation rate won't take effect on that I Bond until October 2020.
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.