bank rates

I Bond Rates Headed Down In November

The bond yield, which will reset in November, is currently 2.21%It looks like another option for savers is slipping away.

Based on our calculations, Series I Savings Bonds next month will begin paying less than top 60-month CDs.

That’s because one measure of inflation used by the Treasury Department to set bond rates has moderated significantly over the last six months.

The Consumer Price Index released by the Bureau of Labor Statistics this morning shows the annualized inflation rate from March through September was less than 2%.

Depending on how Treasury rounds the inflation data, I Bonds could yield as little as 1.74% to 1.76% beginning in November.

That’s well below what I Bonds pay today. The rate has been set at 2.2% since the beginning of May.

I Bond Rates

Issue date Composite rate
May 2012 2.20%
Nov. 2011 3.06%
May 2011 4.60%
Nov. 2010 0.74%
May 2010 1.74%

We won’t know for certain until Nov. 1 what the new rate will be. That’s because Treasury also adds a second, fixed rate in its calculation to form the composite rate.

The fixed rate has been as high as 3.6%. But it has been stuck at zero since November 2010, and it’s unlikely to change when the Treasury announces what the fixed rate will be for I Bonds purchased between November and April.

Whatever the fixed rate is set at will remain in place for the life of the bond. But the inflation component changes every six months.

So it looks like these bonds will earn between 1.74% and 1.76% total beginning in November.

You still have time to earn 2.21% for six months. Your rate changes every six months after the issue date – that’s the date you purchased the bond.

So, if you bought a bond today, you’d get the higher rate until April, and then you’d earn the 1.74% composite rate for six months after that. Your composite rates going forward would change every Oct. 1 and April 1 until you cash out the bond.

Buy now and you still will make more than on all but the best local certificates of deposit. Buy next month and you won’t.

The top 5-year deal on our CD Rates Leaderboard pays 1.86%.

You can score a better deal than the new I Bond rate with the best credit union and local CD deals – if you can qualify.

Of course, if inflation picks up in the next six months, I Bonds could again look like the better deal come next spring, as there’s no reason to think that CD rates will increase between now and then.

If you want to buy I Bonds, you must buy them online at TreasuryDirect.gov.

The government will only allow you to invest $10,000 a year in a single type of bond under a single Social Security number.

If you redeem Series I Bonds within the first five years, you’ll forfeit the three most recent months’ worth of interest. After five years, there is no early-withdrawal penalty.

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