New I bond fixed rate 0.3%; EE 1.2%
Monday, November 2nd, 2009
Categorized as: Savings Bond interest rates • Savings Bond news
New Series I bond Savings Bonds will earn 3.36% for their first six months. The rate is made up of a new fixed rate of 0.30% and an inflation component of 3.06%. 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 111 percentage points, the lowest in two years and less than half the spread of a year ago. The 10-year TIPS rate on Friday was 1.41%.
The increased rate may be a sign that Obama Treasury appointees will be 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 1.20% 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% | 6.51% | |
| Nov 98 - Apr 99 | 3.30% | 6.41% | |
| May 99 - Oct 99 | 3.30% | 6.41% | |
| Nov 99 - Apr 00 | 3.40% | 6.51% | |
| May 00 - Oct 00 | 3.60% | 6.72% | |
| Nov 00 - Apr 01 | 3.40% | 6.51% | |
| May 01 - Oct 01 | 3.00% | 6.11% | |
| Nov 01 - Apr 02 | 2.00% | 5.09% | |
| May 02 - Oct 02 | 2.00% | 5.09% | |
| Nov 02 - Apr 03 | 1.60% | 4.68% | |
| May 03 - Oct 03 | 1.10% | 4.18% | |
| Nov 03 - Apr 04 | 1.10% | 4.18% | |
| May 04 - Oct 04 | 1.00% | 4.08% | |
| Nov 04 - Apr 05 | 1.00% | 4.08% | |
| May 05 - Oct 05 | 1.20% | 4.28% | |
| Nov 05 - Apr 06 | 1.00% | 4.08% | |
| May 06 - Oct 06 | 1.40% | 4.48% | |
| Nov 06 - Apr 07 | 1.40% | 4.48% | |
| May 07 - Oct 07 | 1.30% | 4.38% | |
| Nov 07 - Apr 08 | 1.20% | 4.28% | |
| May 08 - Oct 08 | 0.00% | 3.06% | |
| Nov 08 - Apr 09 | 0.70% | 3.77% | |
| May 09 - Oct 09 | 0.10% | 3.16% | |
| Nov 09 - Apr 10 | 0.30% | 3.36% | |
Keep in mind that the new interest rate for your I bonds will not necessarily begin in November. 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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I suggest you update and append your October 15th chart to this post.
Two things. First, you've got a typo for the current composite rate. It should be 3.36 instead of the 3.06 which reflects the inflation component only.
Second, what are your thoughts on buying I-Bonds right now. Clearly we all held off buying for the last six months and righly so, and clearly EE bonds are a poor choice, but what's your thought on Ibonds right now?
Hi Tom:
With the new rate for I-Bonds at 3.6 would the following be a good strategy?
Cash in a 10/2003 bond now earning zero percent for the next five months and purchase a new I-bond at 3.6%? The 2003 bond has a fixed component of 1.1 versus the new bond fixed component of 0.3%. The tax liability is not a factor for me.
I have a couple of bonds from the 0.0% fixed part of last year. Is the increase in the fixed rate enough to justify cashing in those bonds during the time when the three-month interest penalty would be zero? Thanks!
Nik and Michael - Thanks for the fixes and suggestions.
Michael - The new I bonds continue to be an excellent choice for the low-risk portion of your investment portfolio. I can't predict the future, so I can't tell you if they are the best choice.
Buzz - No, this is a bad idea. You're giving up a 1.1% fixed rate for a .3% fixed rate. I misunderstood your question the first time I read this and gave you and John the same answer. Scroll down a bit to Mike B.'s comment, where he gives a much better answer to your question than I originally did.
John - Thanks for the idea - here are the details.
Tom Adams
Tom,
I thought that the composite rate for the period May 09 through October 09 was zero because the inflationary rate was negative. Am I mistaken on this?
Unless I'm missing something, most of the above "composite rates" are mathematically off by a little, for if the composite rate is simply the fixed rate plus the current inflation component of 3.06%
Hi Tom,
Thanks for your website. I especially look forward to your updates in mid-April, the first of May, mid-October and the first of November. The current bonds appear to be a pretty good deal. If you buy them the last week in November and sell them November 1, 2010 (taking the 3-month penalty), the worst-case senario is that they will yield approximately 1.8% for a little over 11 months (1.9% equivalent state taxable return in Missouri when you take into account that no 6% Missouri state tax is due). This assumes a 0% inflation component in the second 6-month period. If the inflation component for the second 6-month period is 3.06% again, then the 11-month return would be about 2.7% (2.9% equivalent Missouri state taxable return). 1.9% is competitive with the current 1-year CD rates and 2.9% is much better than the 1-year CD rates.
Tom,
Did you really mean to answer "yes" to Buzz's question? I wouldn't sell a 10/2003 bond to buy a new one - you gain 3.36% for 5 months, but then you lose 0.8% (fixed rate difference) thereafter. So if you hold the bonds for a long time, you definitely lose - and if you don't, then you have the 3-month penalty on the new bonds, which I think would just about cancel any possible gain.
Mike
Diane - you are correct. The chart on this page shows the rates for the six-month period after that one.
JJ - the actual formula for the composite rate isn't just the fixed rate plus the composite rate. It also adds in a third number, which is the fixed rate times the composite rate. It's there to adjust the fixed rate for inflation and makes the numbers look a bit too high.
Bill - agreed.
Mike B. - Yikes, you're right! I misread Buzz's question. I'm going back up to change that answer now.
Tom Adams
Tom, Please clear the air. The I bonds are at 3.36. This makes scents to purchase at this time. Why wouldn't you move bonds that are at 0%? How long will you get the 3.36% ? If the rate changes back to 0% will your bonds in May 2010 get 3.36 or 0%? Thanks for your help.
Walt - I bonds earn a combination of a fixed rate and the current inflation rate. Since they all earn the same inflation rate, which is recalculated every six months, the essential difference between one I bond and another is the fixed rate.
Because for the last six-month rate period the inflation rate was more negative than even the highest fixed rate, all I bonds earned 0% for six months.
It just doesn't make sense to trade in an I bond for one that has a lower fixed rate. When comparing I bonds, do not look at the composite rate - it's just for six months. Look at the fixed rate, which is forever.
Tom Adams
Tom wrote: Look at the fixed rate, which is forever.
Not to quibble, but 'forever' is a lot longer than 30 years.