bank rates

I Bonds Now Pay Near 2%

Hand grabbing money out of a jarInflation-adjusted Series I Savings Bonds just received a big boost.

The U.S. Treasury announced this morning that I Bonds will pay 1.94% for the next six months, up from 1.38% the previous six months.

That’s a better return than you can see on all but the top certificates of deposit.

That jump occurred because consumer prices have increased a bit over the last half year.

Inflation data released last month showed the Consumer Price Index increased at a rate of 0.92% between September 2013 and March, well more than the 0.59% the prior six months.

The total return on Series I Bonds is calculated by adding the inflation rate, which changes every six months, and a fixed rate that is established when you buy each bond and never changes.

The fixed rate has been as high as 3.6% but was stuck at zero between November 2010 and November 2013, when the Treasury increased it to 0.20%.

It cut that rate a bit today to 0.10%. Remember, this part of the total return will never change over the life of the bond if you buy between today and Oct. 31.

Here’s how Treasury figures the inflation component:

The CPI-U for September 2013 was 234.149, and the CPI-U for March 2014 was 236.293. That represents a six-month increase of .92%. To get the annualized rate, you multiply by two.

How does the total return on newly issued I Bonds compare?

It pays well more than 3-, 6-, 12-, 24- or 36-month CDs on our CD Rates Leaderboard. It isn’t nearly as good, however, as the top 60-month CD rates, which climbed to 2.31% APY this week.

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

Unfortunately, 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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