November Savings Bond Rates - Composite I Bond Rate of 6.89%
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 6.48% (annualized). The noteworthy news this time is the I Bond fixed rate. The Treasury increased the fixed rate from 0% to 0.40%. This is close to the peak fixed rate during the last rate hiking cycle (0.50% in Nov 2018 and May 2019). The result is a composite rate of 6.89%.
The change of the I Bond inflation rate from 9.62% to 6.48% may be a disappointment, but the 6.48% rate is the third highest inflation rate since the I Bond was introduced in 1998. Before today, the highest I Bond inflation rate was 9.62% that was set last May. The list below shows the six highest I Bond inflation rates. The full history of I Bond rates can be viewed at this TreasuryDirect page.
Six Highest I Bond Inflation Rates (Annualized)
- 9.62%, May 2022
- 7.12%, November 2021
- 6.48%, November 2022
- 5.70%, November 2005
- 4.92%, November 2008
- 4.84%, May 2008
Summary:
I Bond Rates:
Composite Rate: 6.89%
Fixed Rate: 0.40%
Inflation Rate: 6.48%
EE Bond Rate: 2.10% (EE Bond is guaranteed to double in value in 20 years)
Rates effective November 2022 through April 2023
The I Bond composite rate is still 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 year.
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.
TIPS currently have a yield advantage over I Bonds. The real yields of TIPS are currently around 1.60% (see this Treasury page). The I Bond fixed rate can be considered a real yield, and with this being 0.40%, TIPS currently have an advantage. However, there are several reasons to still max out on I Bonds. One reason is the I Bond tax advantage. For Treasurys including TIPS, federal income tax has to be paid yearly. On I Bonds, you can defer federal income tax until you redeem the I Bond or until it reaches its 30-year maturity.
An important 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 6.48% inflation rate won't take effect on those I Bonds until April 2023. If you purchased I Bonds in July 1999 and January 2000, the 6.48% inflation rate won’t take effect on those I Bonds until January 2023. For more details, please refer to this Treasury Direct page.
Composite I Bond Rate = 9.58% to 10.20% 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 9.58% to 10.20%. That’s a decline for the 6-month period based on last May’s I Bond inflation rate (9.62%) that resulted in composite rates between 12.76% to 13.39%. Nevertheless, it’s hard to complain about a safe return of around 10%.
EE Bond Rates
The Treasury finally increased the EE Bond rate. It’s now 2.10%. It had been 0.10% since May 2015. The new rate is higher than it has been since November 2007. This TreasuryDirect page has the history of EE Bond rates.
Even with this new rate, the main benefit of the EE Bond is holding it for 20 years. At the 20-year mark, the EE Bond value is guaranteed to at least double in value. A doubling in value is equivalent to an annual return of about 3.5%.
There has been some concern that the Treasury might end this double-in-value guarantee, but the Treasury kept this guarantee without any changes in today’s announcement.
When rates were low, this double-in-value guarantee made the EE Bond a good deal if you were okay holding the EE Bond for 20 years. However, Treasury yields are much higher these days. The estimated yields of the 20-year Treasury bond have been in the range of 4.00% to 4.60% in the last month according to the Daily Treasury Par Yield Curve Rates page. Thus, you will likely earn more today with Treasury notes and bonds.
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 last 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)
Existing Bondholders will not be getting 0.01% part of the composite rate - inflation adjusted portion of fixed rate.
It is straight - 3.24% for next 6 months.
On the flip side, existing Bondholders still likely enjoying 4.81% Return
Those whos Bonds came off 9.62% rate like Bonds issued in October 2021 managed to provide themselves limited retrieve from inflation at the Gain of about 6% where Bonds Redeemed November 2022.
Very solid Gain considering the combination of near zero risk profile and near zero interest paid for Deposits and other Fixed Income Investments at the time of the purchase in late 2021
I anticipated reintroduction of fixed rate and I see that Treasury being cautious while making the bet that year-over-year Inflation will subside.
If that happens to be the case, Treasury will have to go all in for May 2023 Bonds Issues, and fixed rate will be in full percentage points, as it happened at the turn of the Century
In a meantime, Bondholders who maxed out their I-Bonds purchase for current year will be able, in two months starting January 2nd of next year, to invest more into I-Bonds at the Guaranteed Rate of the Return of 3.65%
Actual Rate of the Return will only be known May 1st 2023
From https://www.treasurydirect.gov/savings-bonds/tax-information-ee-i-bonds/
"You were deferring. You now want to report every year.
You may do this without permission from the IRS.
But you must do this for all the savings bonds for the Social Security Number whose tax return this is. In addition to the interest for the year you are now reporting, you must also report all interest those bonds earned in the years before you changed.
You were reporting each year. You now want to defer the interest.
You must fill out IRS Form 3115 or follow the instructions in IRS Publication 550 in the section on U.S. Savings Bonds"
Thanks for the info.
https://www.treasurydirect.gov/savings-bonds/manage-bonds/convert-paper-to-electronic/
The longer answer is: For the most part, no. Individuals need a US SSN (thus need to be US citizens).or EIN (IE own a business), so theoretically a foreigner (from Europe or anywhere else) could purchase i-bonds via the US business (EIN) they own though technically the business would own the bonds and not the person
It would be greatly appreciated.
So on $10k, after six months you would have an approximate total of $10,481.
After another full six months you would have approximately $10,820.
If you redeemed 12 months later, in October, you would lose the last three months (Jul, Aug, Sep).
So your total redemption would be (approximately) $10,650 . . . a return of 6.5% over 12 months.
Or a little over 7%, if you want to play games and think of it as a $650 return over 11 months (since you funded at the end of October).
Redeeming in November (13 months later) would also yield around 7%, if you want to think of it as 12 months, instead.
As I indicated, these are just ballpark figures, to get you started; I'll let you do the math on the rest. There are (complicated) ways to get more precise dollar figures. But your perceived percentage return, for comparison's sake, is based on your own perception.
And a little bit of luck, too, if you're not careful.
Better to buy several days BEFORE the end of the month.
And better to redeem a day or two AFTER a month begins (earliest, on the 2nd).
It's not about precision, but circumspection . . . and perception.
Hope the above is somewhat useful / helpful to you!
If October 2022, you will earn 4.81% (annualized 9.62%) through April 30. On May 1, 2023 your 6 months of interest earned from October through April will be compounded (added to your purchased principal) and the sum of the two amounts then becomes the new principal amount on which your interest would be computed for the next six months, at the new 3.445% rate (annualized 6.89%) through October 2023, except that if you redeem the bonds in October, you will lose the last 3 months of interest, from August through October inclusive. Then, your rate of return for the 12 months will be 4.81% plus (104.81 x 3.445% x 3/6, rounded to:) 1.80%, for a total of 6.61%. However, if your new bonds show an issue date of November, you will not be able to compute your exact rate until May 1, 2023, because only then will you know the rate that will apply for the 6 months from May through November.
I am afraid that preoccupation with %%% and Rates, be it Annual or Annualized, is a bit misleading to many.
It doesn't seem obvious that Longer Hold and LOWER Rates still generate MORE Return on Principal where return of the Principal with some Gain added is guaranteed.
Minimum Gain achieved over Shortest Investment period - Guaranteed Rate of the Return.
From here things get complicated because I-Bond is weird VARIABLE Rate FIXED Income type of the Investment.
In Ken's example lower %%% Rates translate in More $$$ Gains
7.01% (11mo) redeem on 10/1/23, 6mo of 9.62%, 3mo of 6.48%, and 3mo of 0% (penalty)
6.97% (12mo) redeem on 11/1/23, 6mo of 9.62%, 4mo of 6.48%, and 3mo of 0% (penalty)
6.93% (13mo) redeem on 12/1/23, 6mo of 9.62%, 5mo of 6.48%, and 3mo of 0% (penalty)
these are Examples -Not the Rules
Another set of Examples will show different relationship, for Bonds issued in October 2021 Longer Hold and HIGHER Rate corresponds to More Return on Principal
3.88% (11mo) redeem on 10/1/22 - $3.56
4.16% (12mo) redeem on 11/1/22 - $4.16
4.39% (13mo) redeem on 12/1/22 - $4.39....
5.84% (18mo) redeem on 05/1/23 - $8.76
Beyond that there is no available data for making reliable estimates.
"Calculate the Value of Your Paper Savings Bond" of TD can be used for up to 05/2023 "Value as of" Calculations
Gets even more complicated when Fixed Rate is involved.
Anybody who can translate these Examples into reliable Purchase/Redemption strategy is welcomed.
I-Bond is neither Deposit or Certificate. Bondholders have no deposit accounts at TD. US Treasury doesn't owe interest to Bondholders.
TD is using term "interest" so The Bondholders understand how investment gets priced or get confused about it.
I-Bond is Fixed Income Security of peculiar Non-Marketable, Variable and Composite Rates kind.
Bondholders have to Purchase it to own. The Purchase comes with the Right to sell it back to US Treasury at the timing of Bondholders discretion but the Price determined by Treasury. Based on multitude of factors The Treasury recalculates the Price, aka Redemption Value, on the first of every month. Until Redemption actually occurs that value is displayed to Bondholders as Current Value in effect during particular Redemption Period. Every piece of data since 1998 to Current and 6 Months Forward is available to Bondholders for use.
Bondholder how wants to see the difference between Current and previous Values may be suggested to use the Calculator.
Treasury Direct provides one, it is ubiquitously called "Calculate the Value of Your Paper Savings Bond" due to the legacy of paper EE-Bonds. It works fine for I-Bonds and other kinds.
There is no "aggregate" value. there is only Current Redemption Value, all other values are null and void 1st of every month.
There is aggregate "Interest Earned", but that has limited use and it resets every 6 months From Issue!