Treasury Confirms May 2011 Series I Savings Bond Rate

Treasury Confirms May 2011 Series I Savings Bond Rate

Two weeks ago, I wrote about the likely rates for Series I Savings Bonds staring in May 2011. At the time it appeared that the variable (inflation) portion of the rate would wind up being 4.60%. While the fixed portion was unknown, it seemed likely that it would remain at 0%.

This morning, I awoke to an e-mail from the U.S. Treasury confirming these numbers:

The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 4.60% earnings rate for I bonds bought from May 2011 through October 2011 also will apply for the succeeding six months after the issue date. The earnings rate combines a 0.00% fixed rate of return with the 4.60% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The CPI-U increased from 218.439 in September 2010 to 223.467 in March 2011, a six-month increase of 2.30%.

If you buy now, you’ll get the current annual rate of 4.60% for the next six months, followed by the six months at whatever the variable rate winds up being in November 2011, and so on. As for that fixed portion, well… It’s fixed, so it won’t ever change. Going forward, you’ll have to depend on that inflation component.

As for me, I’m still not sure how we’ll proceed. Given that we’re buying Savings Bonds for the long term, however, we don’t have much to lose by waiting until November to see if the fixed rate gets bumped up. If there wasn’t an annual purchase limit on I Bond, this would be less of an issue. But there is, so I’m leaning towards waiting to see what happens in six months before jumping in.

10 Responses to “Treasury Confirms May 2011 Series I Savings Bond Rate”

  1. Anonymous

    Don’t forget that I-bonds are exempt from state income tax, if your state has that.

    I can’t think of any way to earn a guaranteed rate of return for the next year that will match what you can earn in I-bonds right now – the worst they can do is produce a 2.3% return, better than the traditional savings bonds, CDs, money market funds, etc.

  2. Anonymous

    Let me see if I understand you.

    If I buy an I Bond today, I get the 4.6% annualized yield for 6 months. At the end of the six months, I get 0% for the next 6 months. In May 2012, I get the inflation component for another 6 months, at which point I get the fixed-rate portion. Is that right?

  3. Anonymous

    Well, the risk of waiting until November is that inflation continues to be high until then, and your money sits in a 1% savings account until winter.

    Personally, I wouldn’t place a lot of hope that November’s fixed rate will be non-zero. If you wanted to be cautious, you could buy half of your annual allotment on the May-October rate and the other half on the November-April rate. I’d rather buy them all on the May-October rate, and if it turns out that the November-April rate is incredible, buy that bond in early 2012 (and sell the May-October bond in May 2012).

    This is not investment advice 🙂

  4. Anonymous

    Thanks. Guess I will wait till the fixed part is above zero. Somehow the concept of buying the fixed zero part is something that sticks out.

  5. Anonymous

    Thanks for the post. I have been trying to add I bonds over the years when I had the extra cash as the bond part of my savings. But that fixed 0% just makes me adverse to put it in. Zero. Come on I think Zero? I want both parts working. Makes me want to go do some research on rates in the past.

  6. Nickel

    Evan: Sort of a tax-favored, inflation indexed, bond-ish type thing. This is actually a good topic for a post, so I think I’ll save the details for that. 🙂

  7. Nickel

    Ginger: The variable portion of the rate is based on the March CPI numbers, which were released in mid-April. Comparing March (223.467) to September (218.439) reveals a six month change of 2.3% – just divide the latter into the former and you’ll get 1.023 (rounding off). Since that was a six month change, the annualized change is 2 x 2.3% = 4.6%.

    Next October, we can compare the September number back to the current March numbers to see what the November rates will look like. Unfortunately, there’s no concrete way of predicting the fixed portion, but does the rest make sense?

  8. Anonymous

    Forget listening to Bernanke I am paying attention to FCN!

    What is the purpose of this portion of your portfolio? Cash equivalent? Bond? Super emergency fund?

  9. Anonymous

    Wow, you were right on the money. How did you know? I love to know your thought process. I am waiting as well. No reason to pick the bonds up when the fixed rate is so low.

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