bank rates

Lead Narrows In I Bond Vs. CD Rates

It looks like Series I Savings Bonds will pay a bit less beginning next month.

But they remain a better option than all but the best local and credit union CD rates.

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 Consumer Price Index released by the Bureau of Labor Statistics this morning shows the annualized inflation rate from September through March was 2.21%.

So that should become the inflation rate on I Bonds purchased beginning next month.

It’s not quite as high as the 3.06% inflation rate from the previous six months and which the Treasury has been paying on Series I Bonds since November 2011.

The second, fixed rate also used to compute what you’ll earn has been as high as 3.6% for bonds purchased between May 1 and Oct. 31, 2000.

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 May and October.

That means the inflation rate of 2.21% should be the total return for all I Bonds purchased beginning in May. Even if Treasury changes the fixed rate, 2.21% is the lowest return you can expect.

You can find a detailed description of how the Treasury sets the rate on the TreasuryDirect website.

Of course, you still have time to earn 3.06% 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 October, and then you’d earn the 2.21% 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 or buy two weeks from now, and you still will make more than on most certificates of deposit.

The top 60-month deal on our CD Rates Leaderboard pays 1.95% APY.

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.

But remember, unlike with most CDs, there is a strict limit on how much you can invest in I Bonds.

Since the Treasury ditched most paper bonds at the beginning of this year, you must buy them online at TreasuryDirect.

The government will only allow you to invest $10,000 a year in a single type of bond under a single Social Security number. (You can still get an additional $5,000 in paper bonds using your tax refund by filing IRS Form 8888.)

Also, 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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