bank rates

Will Series I Bonds Make A Comeback?

It wasn’t that long ago that returns on the Treasury Department’s Series I Savings Bonds looked pretty good.

The bond yield, which will reset in May, is currently 0.74%But then inflation fell to next to nothing, and rates on Series I Bonds plunged.

Through April 30, they’re set at 0.74%, about the same annual yield you’d see from the average 24-month CD.

That’s pretty weak. You can get a better deal by buying the top 3-month CD on our CD Rates Leaderboard.

Still, Series I Savings Bonds can be a nifty investment because their interest rate resets every six months to reflect inflation. If you own a Series I Savings Bond, you can even root for inflation to take hold in the economy and boost your rate of return.

However, inflation adjustments for Series I Savings Bonds always lag actual inflation in the economy.

The government resets the earnings rates each May and November based on changes in the Consumer Price Index for the preceding six months.

Holders have to play a waiting game.

The semiannual inflation rate used to calculate Series I Bonds returns fell to 0.37% for the most recent six-month period, down from 0.77% the previous six months. A second, fixed rate also used in calculating bond returns is set at 0%.

Inflation has been pretty tepid since last fall. Rates on savings bonds will be reset May 1 but are unlikely to be significantly higher.

Savings bonds still offer some nice features like:

  • Deferred federal taxes on earnings until redemption
  • Exemptions from state and local taxes
  • Cheap entry — bonds can be purchased online for as little as $25

If your portfolio is sensitive to inflation, Series I Bonds can still make a lot of sense as a hedge. But savers may find that rates on bank money market and savings accounts will start moving higher before rates on savings bonds.

If you still want in, the easiest way to buy savings bonds is at TreasuryDirect.

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Comments (8)
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8 Existing Comments
  1. Frank said:
    on February 26th at 09:15 pm

    at least there is no downside risk, TIPS funds can decrease in value

  2. Dr. Timothy Lawler said:
    on February 27th at 03:13 am

    Great post. I agree that I bonds are nice because they can be purchased for a cheap price, only $25 as you point out. At TreasuryDirect, can you just buy them with a debit card? Or do they need bank account info?

  3. Mike Cetera said:
    on February 28th at 09:00 am

    When filling out the online application, TreasuryDirect requires you to supply your bank’s routing number and account number.

  4. Sammy F said:
    on February 28th at 11:07 am

    Good post, I would also add that at least you are giving your money for the govt to borrow instead of a greedy bank. If more people bought savings bonds maybe we would have to borrow less via foreign capital – so there is a patriotic aspect to savings bonds.

  5. Kristine said:
    on March 2nd at 06:26 pm

    You could do a lot worse than Series I bonds. Not too sexy, but stable. Count me in.

  6. Mindy said:
    on March 29th at 02:24 pm

    any idea what rate these will reset at in May?

  7. Mike at Bankaholic said:
    on March 30th at 09:01 am

    We won’t know until the Treasury reveals the new rates in May.

  8. Bradley said:
    on April 2nd at 11:02 am

    The federal tax benefit + inflation protection + principal protection make this a good nestegg investment