Treasury Confirms May 2012 Series I Savings Bond Rate

Not long ago, I wrote about the likely rates for Series I Savings Bonds starting in May 2012. At the time it appeared that the variable (inflation) portion of the rate would wind up being 2.21%. While the fixed portion was unknown, it seemed likely that it would remain at 0%.

On Monday, I received the following from the U.S. Treasury:

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 2.20% earnings rate for I bonds bought from May 2012 through October 2012 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 2.20% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The CPI-U increased from 226.889 in September 2011 to 229.392 in March 2012, a six-month increase of 1.10%.

Drat! I was off by 0.01% in my prediction! I incorrectly waited until after annualizing the six month rate to round it off. That is, 1.103% x 2 = 2.206%, which rounds to 2.21%; instead, I should have rounded to 1.10% and then doubled it to 2.20%.

As expected, the fixed rate stayed at 0.0%, so if you buy now you’ll get the current annual rate of 2.20% followed by the new variable rate (to be announced in November 2012) for the next six months, and so on. Unfortunately, you’ll have to deal with that 0% fixed rate until you redeem your bonds.

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