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

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).

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.