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Buying Series I Savings Bonds

Written by Nickel - 9 Comments

Buying Series I Savings BondsWell, it took me nearly six months to take my own advice, but… I logged into TreasuryDirect last night and bought some Series I Savings Bonds. We were initially delayed by some snags in setting up my wife’s account, and then time simply got away from us.

I was finally prompted to act by news that the variable portion of the interest rate will be dropping from 3.06% to 1.54% in May. The fixed portion currently stands at 0.30%, so we’ll be locked in at the current rate of 3.36% for the next six months, followed by six months at 1.84% (0.3% plus 1.54%), followed by… Who knows?

It’s unclear what will be happening with the fixed portion of the rate, but the general consensus is that it won’t be moving too much. We’ll just have to wait and see. Hopefully they won’t spike, making me regret pulling the trigger now instead of ten days from now.

The next step will be to swing by the bank and buy our allotment of paper bonds. For those that are unaware, the Treasury limits savings bonds purchases to $5k per person in both electronic and paper form per calendar year, or a total of $10k per person through the two channels combined.

Published on April 22nd, 2010 - 9 Comments
Filed under: Saving & Investing

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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9 Responses to “Buying Series I Savings Bonds”

  1. 1
    BG Says:

    Wouldn’t you be locking in the 3.36% rate, only till May 1 (another week or so), and then have your rate immediately drop to 1.54% rate starting in May when everything resets?

    Honestly, I don’t know how these things work…

  2. 2
    Nickel Says:

    No, you get six months at the prevailing rate from when you buy, and then it resets to the then-current rate for six months, and so on. So we’ll get six months at 3.36%, then in late October, it will switch to six months at 1.54%, then a year from now the variable rate portion will switch to whatever is announced in November. Confusing, huh? :)

  3. 3
    BG Says:

    Now that you’ve explained how they work, it’s not confusing.

    I’ll wait and pull the trigger once my mortgages are paid off — I’m getting a better return doing that, but I see the value in buying these things once you are debt free. I like that you can break them after a year (with 3/month penalty if done in the first 5 years) — especially if CDs start out-competing them…

    Thanks for the tip!

  4. 4
    Nickel Says:

    BG: You can technically break them after 11 months and 1 day if you time the purchase right, since you get credit for all of the current month. Also, since they are inflation-indexed, there’s a decent chance that their rates will be up when CDs go up.

    Depending on how much you have to invest, you’ll want to think carefully before selling given the annual dollar limit.

    Also, if you get in at a time when the fixed rate is high, you should seriously consider holding even if a deflationary period hits and the yields plummet (the variable yield is subtracted from the fixed if it goes negative, but you can never get less than zero). Back in 2000, the fixed component was 3.6%!!! If I had that, I’d probably never break it, even if the variable rate fell low enough to take it down to 0% for awhile.

  5. 5
    Mike Says:

    Can you purchase EE/I Bonds with a Visa/MC (Credit Card)at your local bank ?

  6. 6
    David C Says:

    I just purchased paper I bonds at my bank today, and they would only take a withdrawal from my checking account. Once upon a time, you could buy bonds online with a credit card but the Treasury stopped that in 2003 (or so).

    They must not sell hardly any paper bonds at my bank, though, because the first banker I talked to didn’t believe that they still sold paper bonds :-( .

  7. 7
    Eric Says:

    I have a family friend who (in hindsight) was genious enough to buy into I Bonds when the fixed rate was 3.6% (I still tell him how jealous I am lol)

    I bought mine back in 2008 when the fixed was 1.2% (right before it kept dropping and dropping). I’m just hanging onto it since it’s money I don’t need right now.

  8. 8
    Steve Says:

    5k x 6 months x 1.85% (interest rate difference) = $46.25

    Probably not even that much considering that the rate will change to the 1.54 in six months.

    I wonder how much the fixed portion would have to go up to make it worth breaking the bond and buying a new one?

    Regardless, I am going to do it. I have been considering switching my emergency fund to i-bonds. Slowly over time of course (since they can’t be redeemed for the first year.) I want to guarantee my efund will always be the same amount regardless of inflation.

  9. 9
    Steve Says:

    … Unfortunately, you have to wait for them to mail you something to sign up for Treasury Direct, which I highly doubt will arrive in the next two days.

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