May Savings Bond Rates - I Bond Fixed Rate Remains at 0.50%

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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.

The I Bond fixed rate remains at 0.50%. With the falling Treasury yields that we’ve seen since November, I was worried that the Treasury would lower it. This rate may seem low, but it’s the highest that the fixed rate has been since 2009.

As I had calculated three weeks ago, the I Bond inflation rate is 1.40%. This results in a composite I Bond rate of 1.90%.

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 (2.75% as of yesterday).

Summary:

I Bond Rates:
Composite Rate: 1.90%
Fixed Rate: 0.50%
Inflation Rate: 1.40%

EE Bond Rate: 0.10%

Rates effective May 1, 2019 through October 31, 2019

One thing that may have contributed to the Treasury’s decision of keeping the fixed rate constant rather than lowering the rate is the fact that the inflation rate component was only 1.40%. This is the lowest inflation rate since May 2016 when the inflation rate was only 0.16%.

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 2.50%. This is still low compared to today’s CD rates, but I Bonds do have tax benefits that CDs don’t have (see the I Bond features list below.)

The last time the I Bond fixed rate was above 0.50% was from November 1, 2008 to April 30, 2009. The fixed rate spiked to 0.70% during this time, but that didn’t last. This was the time the economy was hit hard by the financial crisis, and the Treasury decided to slash the fixed rate to 0.10% on May 1, 2009 (ten years ago.) From that point forward until last November, the fixed rate never exceeded 0.30%. Most of that time, the fixed rate was zero.

Hopefully, we’ll see the I Bond fixed rate rise in the years ahead. The current fixed rate is an improvement over the low fixed rates of the last decade, but it’s still low compared to the years before 2008, when the fixed rate had always been 1.00% or higher.

Current I Bond Holders

If you have old I Bonds, you'll have six months of rates that range from 1.40% (for I Bonds with a fixed rate of 0%) to 5.02% (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 1.40% 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 1.40% inflation rate won't take effect on that I Bond until October 2019.

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
  • 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
AKRON
AKRON   |     |   Comment #1
Meh.....A lot of work & trouble for 2.83% and for the measly max amount of $10,000. Nope.
YuYu
YuYu   |     |   Comment #2
I have some I-Bond I purchased a couple of years ago with the fixed rate of 0.1% . Does that mean I should take the money out since I am getting 1.5% in the next 6 months which is much lower than the current top rate savings account even after I take tax consequence into account. DA, please advise. Thanks.
anonymous
anonymous   |     |   Comment #8
YuYu, my opinion is that I bonds are best used as long-term investments. They provide protection from rising inflation and are tax deferred. Some of my I bonds I've held for over 15 years and have earned considerable interest that is tax deferred, so these I wouldn't even consider redeeming (I don't even follow the semiannual rate changes).

That said, for your situation, you need to assess if you consider this just as an alternative to a savings account, or part of your long-term plan. Remember that there's a purchase limit and also that there will be a 3-month penalty if redeemed in the first 5 years. The inflation rate fluctuates, so if the rate is a bit lower for the next 6 months, it will tend to be higher the following 6 months. If the Fed does their job right, you can expect approx. 2% + fixed rate as a rough long-term average. It's not uncommon to see a 6 month period where I bonds underperform. There have also been a few periods where they have absolutely outperformed other savings choices. In general, you should expect over the long term to get a little bit lower rate in I bonds vs. alternatives because you're forgoing the inflation risk. But it's a good idea to have some inflation-hedged assets as part of your overall strategy.
anonymous
anonymous   |     |   Comment #9
I should add that none of my I bonds have a fixed rate lower than 1% (I bought them a long time ago) so I guess that helps in keeping them competitive. If you're interested in them long-term, I would recommend to focus on the fixed rate and compare it to the current market rate of the I bond's big cousin, the 5-year and 10-year TIPS:

https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/TextView.aspx?data=realyield

For example, 5 year TIPS have 0.48% real yields and 10-year TIPS 0.59%. So, for example an I bond with 0.50% fixed rate is pretty competitive with these yields right now.
Yu
Yu   |     |   Comment #13
Thanks a lot for the advice.
YuYu
YuYu   |     |   Comment #3
Also, I have a question with regard to the current rate I have. I purchased the I-Bond in 12/2017, based on the table below from TreasuryDirect, is my rate changed to 1.50% starting 05/01/2019? It really confuses me as the table shows all I-bind purchased between 11/17 and 04/18 will earn 1.5% staring 05/01/2019. But by reading Ken's comments above, I thought I am earning 2.42% until 5/31/2019, and then 1.50% from 06/01/2019 since I purchased the IBond in 12/2017. Please help to understand. Thanks a lot.

Issue Date FixedRate May-19 Nov-18 May-18 Nov-17
05/19 - 10/19 0.50% 1.90%
11/18 - 04/19 0.50% 1.90% 2.83%
05/18 - 10/18 0.30% 1.70% 2.62% 2.52%
11/17 - 04/18 0.10% 1.50% 2.42% 2.32% 2.58%
Lrdx
Lrdx   |     |   Comment #5
The issue date in this table is not a range, but a fixed month. All I bonds change the rate every 6 month.
anonymous
anonymous   |     |   Comment #10
TreasuryDirect has a savings bond calculator application where you can see how much your bond earns:

https://www.treasurydirect.gov/BC/SBCPrice
AKRON
AKRON   |     |   Comment #11
Just keep them-we're talking about pennies here. Makes no difference. If it were a lot of money then yah I would say get rid of them. But really.....who cares?? Focus on larger investments & returns.
Mak
Mak   |     |   Comment #4
I can only speak for myself but there is no way I would buy I-bonds with a lousy 1/2% rate..... waste of time imo.
Learn More
Learn More   |     |   Comment #6
.50% - plus 1.4% twice the rate of inflation and tax exempt from State tax and tax deferred from Fed tax. Bank CD is not tax exempt or tax deferred
Mak
Mak   |     |   Comment #7
I have them with a 1.6% and a 3.0% base rate before you were limited to a measly $10,000....no thanks I'll gladly pass on these.
AKRON
AKRON   |     |   Comment #12
Yawn......on a lousy $10,000 max per year? Waste of time even debating this. They are not worth it.
calwatch
calwatch   |     |   Comment #14
I bought my $10,000 on April 29 but am using this period to assess how much I want to keep in I Bonds. To me it's a a great second tier emergency fund/cash in case there's a deal where it is essential. It also allows me to tilt the rest of my portfolio strongly into stocks. Unfortunately most of mine were bought in the early 2010's with low interest rates, but at least the penalty is gone.
DCGuy
DCGuy   |     |   Comment #15
The I-bonds cannot be cashed in less than a year after purchase, so I would not treat it as an emergency fund if you needed the money in less than a year. There is also the less than five year interest penalty. I decided to move a large sum of money (way more than $10K) to a US Treasury MM fund. I don't have any withdrawal restrictions and the current yield is 2.37% which is competitive. The only benefit that it is lacking Is the potential for the dividends to be tax free if used for educational purposes, but at my age, I don't plan to paying for school expenses.
calwatch
calwatch   |     |   Comment #17
OTOH you have to pay taxes annually on the interest. The tax deferral feature is another way of adding to tax advantaged space once my 457 and IRA are funded. I do not want to use a HDHP so cannot contribute to a HSA. Ultimately unless there is a screaming deal elsewhere I'll keep it in the bonds.
#16 - This comment has been removed for violating our comment policy.
#18 - This comment has been removed for violating our comment policy.
YuYu
YuYu   |     |   Comment #19
Anyone knows how quick the fund will be deposited to my designated checking/savings account once I redeem it? I plan to redeem the old I-Bond on June 1st since it will only give me 1.5% APY starting June 1st.

Thanks.
Judith Ann
Judith Ann   |     |   Comment #20
If I cash in an I bond to help my granddaughter pay on her Student Loan, would the interest be tax exempt.
Very Anonymous
Very Anonymous   |     |   Comment #21
No. The exclusion is for paying tuition costs and not for paying loans. Also, the student must be yourself, your spouse, or a dependent.

See Chapter 10 in Publication 970:

https://www.irs.gov/publications/p970#en_US_2018_publink100076898
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