New I bond fixed rate 0.20%; EE 1.40%

Monday, May 3rd, 2010
Categorized as: Yesterday's News (old post archive)

New Series I bond Savings Bonds will earn 1.74% for their first six months. The rate is made up of a new fixed rate of 0.20% and an inflation component of 1.54%. The fixed rate is good for the life of the bond; the inflation component is adjusted every six months based on changes in the Consumer Price Index.

The spread between the I bond fixed base rate and the 10-year TIPS dropped to 109 percentage points, the lowest in two years and 50 percentage points less than the spread of a year ago. The 10-year TIPS rate on Friday was 1.29%.

Obama Treasury appointees have been a bit friendlier to Savings Bond investors than the Treasury appointees at the end of the Bush administration were.

The rate on new EE bonds will be fixed at 1.40% for 20 years. It only makes sense to invest in these if you can hold them for 20 years, at which point their double-value guarantee will give you a rate of 3.50%.

To determine what your own I bonds will earn during their next six-month rate period, see the following table.

 

New Series I Savings Bond composite rates

Issue Date Fixed Rate Composite Rate
Sep 98 – Oct 98 3.40% 4.97%
Nov 98 – Apr 99 3.30% 4.87%
May 99 – Oct 99 3.30% 4.87%
Nov 99 – Apr 00 3.40% 4.97%
May 00 – Oct 00 3.60% 5.17%
Nov 00 – Apr 01 3.40% 4.97%
May 01 – Oct 01 3.00% 4.56%
Nov 01 – Apr 02 2.00% 3.56%
May 02 – Oct 02 2.00% 3.56%
Nov 02 – Apr 03 1.60% 3.15%
May 03 – Oct 03 1.10% 2.65%
Nov 03 – Apr 04 1.10% 2.65%
May 04 – Oct 04 1.00% 2.55%
Nov 04 – Apr 05 1.00% 2.55%
May 05 – Oct 05 1.20% 2.75%
Nov 05 – Apr 06 1.00% 2.55%
May 06 – Oct 06 1.40% 2.95%
Nov 06 – Apr 07 1.40% 2.95%
May 07 – Oct 07 1.30% 2.85%
Nov 07 – Apr 08 1.20% 2.75%
May 08 – Oct 08 0.00% 1.54%
Nov 08 – Apr 09 0.70% 2.25%
May 09 – Oct 09 0.10% 1.64%
Nov 09 – Apr 10 0.30% 1.84%
May 10 – Oct 10 0.20% 1.74%

Keep in mind that the new interest rate for your I bonds will not necessarily begin now. Instead, new rate periods begin every six months starting with the month in which your I bond was issued. So, for example, an I bond issued in July begins new rate periods in July and January.

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FDIC Insured Certificates of Deposit can pay 1 or 2% more than savings bonds when held for a similar length of time. See top CD Rates Below:

12 Comments

On May 3rd, 2010 Nik said:

Today (5/3/10) Treasury Direct reports the following current I-Bond interest rates:which differ from those in the chart above as shown below.

Issue Date Fixed SBA % TD %
May 00 – Oct 00 3.60% 5.17% 6.72
Nov 00 – Apr 01 3.40% 4.97% 6.51
May 01 – Oct 01 3.00% 4.56% 6.11
Nov 01 – Apr 02 2.00% 3.56% 5.09
Nov 07 – Apr 08 1.20% 2.75% 4.28

On May 3rd, 2010 David E said:

I’m surprised that the rate for EE bonds edged up while the fixed rate for I-Bonds dropped a little. Could they be trying to direct investors toward the EE bonds in case future inflation makes the I bonds more expensive for Treasury? In any case, either bond is a better place to park money for a few years than a basic savings account at your bank.

On May 4th, 2010 Tom Adams said:

Nik – I’m not sure what you’re looking at, but I just double checked using TD’s Savings Bond Calculator and all of the interest rates in my table are correct.

The only thing I can think of is that you’re not looking at the rates for May or Nov bonds. If you look at any other month the bond is still earning the old rate.

Incidentally, the Treasury has announced it’s releasing a new version of the Savings Bond Wizard on April 14 and no further data updates for the current version will be available. The calculator here uses the Wizard’s data tables, so it will be at least two weeks before it’s updated.

Tom Adams

On May 5th, 2010 shtinkykat.blogspot.com said:

Tom: I have a question re: the 3 month interest penalty I would have to pay if I redeem my I-Bond within 5 years of purchase. For example, with respect to an I-Bond that I purchased in Jan. 2010, the applicable composite rate was 3.36% for the period between 1/1/10 to 6/31/10. But the actual period in which I accrue interest is 4/1/10 to 9/30/10. The new composite rate of 1.84% would apply and accrue between 10/1/10 – 3/31/11. If I sold my I-Bond in January 2011, wouldn’t that just mean that I only earned the 3.36% interest between 4/1 – 9/30/10, so the net effective interest rate (not accounting for taxes) would be ~1.78%?

On May 5th, 2010 Tom Adams said:

No, you misunderstand how this works. A Jan 10 bond earns 3.36% for the six months from Jan to Jun and 1.84% for the six months from Jul to Dec. But you would lose half of the 1.84% because of the three month penalty.

So, assuming a $100 bond, six months of 3.36% is $1.68 and three months of 1.84% is $0.46 for a total of $2.14 or 2.14%.

Tom Adams

On May 6th, 2010 Shtinkykat said:

Sorry to bother you again. Why is it that when I check my balances on Treasury Direct, there’s a 3 month lag time from the month of purchase to when I start accruing interest? Going back to my prior example of the Jan 2010 $50 I-Bond, I noticed I didn’t start accruing interest until April. Is it just a matter of lag time of updating the TD website?

On May 6th, 2010 Tom Adams said:

TD is showing you the redemption value of the bond, not the actual value.

Until a bond is five years old, the redemption value is the actual value minus the most recent three months of interest.

So, for the first three months, it appears there’s no interest being earned. But it is being earned and is hidden by the early redemption penalty.

Tom Adams

On May 6th, 2010 Chemster said:

I know you have no inside track as far as the I bond fixed rates, but in retrospect, were you surprised it went down to 0.2%?

On May 7th, 2010 sara said:

When the new savings bond wizard goes into effect on May 14th, will I have to re-enter all my bond information (serial numbers, denominations, etc.) from the old one?

On May 7th, 2010 Tom Adams said:

Sara – The info you’re looking for is here (see comments).

Chemster – No, I’m not surprised. Given the rate on 10-year TIPS it’s exactly what I would have predicted if the Treasury was predictable. But they aren’t.

Tom Adams

On May 8th, 2010 Steve said:

Tom,
Are you aware of a calculator for Savings bonds that will show both the actual value as well as the redemption value for Savings Bonds held under 5 years? Thank you.

On May 10th, 2010 Tom Adams said:

Steve – there isn’t such a thing. They all show redemption values.

Tom Adams

Comments Closed

June 1, 2010

After six years, over 400 posts, 3,680 real comments, and over 90,000 spam comments (thank you, Akismet, for making managing a blog with comments possible), I am closing public comments on Savings-Bond-Advisor.com. I will contine to update the main articles on this site, but not the comments.

Virtually every question about Savings Bonds has been asked and answered on this site multiple times. Use the search feature (see the box in the gray area near the top of this page) or the detailed menu on the lower part of the home page to find the information you're looking for. If you have a copy of Savings Bond Advisor, you can ask me a question here.

Tom Adams

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