Treasury Raises I Bond Fixed Rate To 0.30%, Highest Since 2009

May 01, 2018 11:19 AM ETTIP, IEI14 Comments
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Summary

  • I Bonds purchased from May 1 to October 31 will carry a composite rate of 2.52% annualized.
  • Real yields have been rising, which supports the Treasury's decision to increase the fixed rate to 0.30%, the highest rate reset since November 2009.
  • A new I Bond buying strategy? In my opinion, the fixed rate of 0.30% is too attractive to pass up.

I Bonds

The fixed rate on U.S. Series I Savings Bonds will rise from 0.1% to 0.30% on May 1, the highest fixed-rate reset since November 2009, The U.S. Treasury just announced.

This means that I Bonds purchased from May 1 to October 31 will carry a "composite rate" of 2.52% annualized, based on the fixed rate of 0.30% and the inflation-adjusted variable rate of 2.22%. Here is the Treasury's announcement:

The composite rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the 30-year life of the bond, and the semiannual inflation rate. The 2.52% composite rate for I bonds bought from May 2018 through October 2018 applies for the first six months after the issue date. The composite rate combines a 0.30% fixed rate of return with the 2.22% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The CPI-U increased from 246.819 in September 2017 to 249.554 in March 2018, a six month change of 1.11%.

The inflation-adjusted variable rate of 2.22% was set in stone with the April 11 release of the March inflation report, and it is actually falling from 2.48% for I Bonds purchased before May 1. But the higher fixed rate - which stays with the I Bond until it is sold or matures - is a much more attractive feature. The Treasury does not disclose how it sets the fixed rate, but in my research, I have found that it tends to correspond with the 10-year TIPS yield. When that yield rises, a higher fixed rate is likely, as I noted in an April 12 article: "I Bond Investors: Hold Off On Purchases Despite A Declining Variable Rate."

Here is the trend in real yields and fixed rates leading to today's

This article was written by

Tipswatch profile picture
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I am no longer writing for this site. More details. I will continue to post updates at my site, TipsWatch.com.-----David Enna is a long-time journalist based in Charlotte, N.C. A past recipient of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website. The Tipswatch blog, which launched in April 2011, explores ideas, benefits and cautions about U.S. Series I Bonds and Treasury Inflation-Protected Securities, which David believes are an under-appreciated and under-used investments. David has been investing in TIPS and I Bonds since 1998.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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