bank rates

Surprise: Series I Savings Bond Rate Holds

Hand grabbing money out of a jarUpdate: Whoa. TreasuryDirect.gov has updated its website. And we’re pleasantly surprised to learn the U.S. Treasury has added a 0.20% fixed rate.

That’s the first time the fixed rate on Series I Savings Bonds has been higher than zero since November 2010. For the next six months, I Bonds will pay 1.38% — including the 1.18% inflation rate — better than all but 36- and 60-month CD rates.

Earlier: TreasuryDirect.gov hasn’t updated its website yet this morning, but for the first time in three years, yields on inflation-adjusted savings bonds likely will not fall when the U.S. Treasury initiates its semiannual rate reset.

In fact, Series I Savings Bonds will pay exactly the same during the next six months — 1.18% — as they have the previous six months.

That’s because inflation data released this week showed the Consumer Price Index increased at a rate of 0.59% between March and September, the exact same increase seen between September 2012 and March.

Now 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 it’s been stuck at zero since November 2010 and won’t likely increase as long as the Federal Reserve is doing its best to hold interest rates down.

Rates had been on a steady decline since May 2011, when they paid 4.60%.

The new yield means I Bonds will pay less than the best 24-, 36- and 60-month CDs on our CD Rates Leaderboard. That makes these certificates a better long-term investment, unless you think inflation (and/or interest rates) are bound to rise dramatically in the next three, four or five years.

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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