New I bond fixed rate zero; EE 0.60%

Tuesday, May 1st, 2012
Categorized as: Yesterday's News (old post archive)

New Series I Savings Bonds will earn 2.20% for their first six months. The rate is made up of a fixed rate of 0.00% and an inflation component of 2.20%. 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 -.30 percentage points, down from 8 percentage points six months ago. Even though this is the fourth time in a row that I bonds will have a zero percent base rate, it’s the first time that Series I Savings Bonds have had a higher fixed rate than TIPS! The 10-year TIPS rate on Friday was -0.30%. The fixed rate on I bonds can’t go below zero, while the fixed rate of TIPS can, which is what set up this anomaly.

Since the Treasury has historically given I bonds a fixed base rate about 100 percentage points below 10 year Treasuries, I bonds are a currently a very good deal compared to TIPS, although it’s hard to think of a zero base rate as a good deal.

The rate on new EE bonds will be fixed at 0.60% 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% 5.65%
Nov 98 - Apr 99 3.30% 5.55%
May 99 - Oct 99 3.30% 5.55%
Nov 99 - Apr 00 3.40% 5.65%
May 00 - Oct 00 3.60% 5.85%
Nov 00 - Apr 01 3.40% 5.65%
May 01 - Oct 01 3.00% 5.24%
Nov 01 - Apr 02 2.00% 4.23%
May 02 - Oct 02 2.00% 4.23%
Nov 02 - Apr 03 1.60% 3.83%
May 03 - Oct 03 1.10% 3.31%
Nov 03 - Apr 04 1.10% 3.31%
May 04 - Oct 04 1.00% 3.21%
Nov 04 - Apr 05 1.00% 3.21%
May 05 - Oct 05 1.20% 3.41%
Nov 05 - Apr 06 1.00% 3.21%
May 06 - Oct 06 1.40% 3.62%
Nov 06 - Apr 07 1.40% 3.62%
May 07 - Oct 07 1.30% 3.51%
Nov 07 - Apr 08 1.20% 3.41%
May 08 - Oct 08 0.00% 2.20%
Nov 08 - Apr 09 0.70% 2.90%
May 09 - Oct 09 0.10% 2.30%
Nov 09 - Apr 10 0.30% 2.50%
May 10 - Oct 10 0.20% 2.40%
Nov 10 - Apr 11 0.00% 2.20%
May 11 - Oct 11 0.00% 2.20%
Nov 11 - Apr 12 0.00% 2.20%
May 12 - Oct 12 0.00% 2.20%

Keep in mind that the new interest rate for your I bonds will not necessarily begin on May 1. 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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June 1, 2010

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