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Series I Savings Bonds Set To Drop

Folded $20 billSeries I Savings Bonds are no longer a good alternative to low CD rates.

Beginning in May — and for the next six months — any new I Bond purchases may yield as little as 1.18%.

We calculated that figure based on the latest inflation data from the Bureau of Labor Statistics released this morning.

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 this morning showed the annualized inflation rate from September 2012 through March was a low 1.18%.

That should be the inflation rate on I Bonds purchased beginning in May.

We won’t know for certain until May 1 what the full I Bond yield will be. That’s because the Treasury Department 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 May and October.

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.

For now, that means I Bonds stand to pay less than the best 24-, 36- and 60-month deals on our CD Rates Leaderboard.

New issue I Bonds have paid as much as 4.60% and as little as 0.74% in the last three years.

Chart showing I Bond rates

You still have time to earn 1.76% 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 1.18% 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 60-month certificates of deposit. Buy next month and you won’t.

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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