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Series I Savings Bond Rate Update (November 2011)
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Now is a great time to buy yourself a Series I Bond and I will probably be loading up on some Series I bonds before the month ends. Why you ask? With my crystal ball, I know that the interest you can earn on Series I savings bonds is going to be pretty good. And pretty good for the next year. 
Calculating New Rate
Every six months, the Series I bond’s rate gets adjusted for inflation. It happens on November 1st and May 1st. Since the CPI-U is used and published every single month, we are basically given all the tools we need to calculate this. September 2011 CPI-U was 226.889 and March 2011 CPI-U was 223.467, which gives us a semi-annual (6 month) increase of 1.53%.
Plug that into the series I bond rate equation, assuming a fixed rate of 0%, and you’re left with a bond that will yield a whopping 4.60%. If the fixed rate is higher, which is a huge if and one I’m pretty sure will not happen, the rate will be higher.
Two Series I Bond Quirks
Remember there are two quirks with Series I Bonds:
- When you buy it in a month, you get credit for the whole month. So buy on October 31st and you get credit for all of October.
- Whatever period you buy in (if you buy one now, you’re in the May 2011 through October 2011 period), you get that period’s fixed and inflation rates for the next six months. The current rate is 4.60% assuming you have a 0% fixed rate, which is what you’d have if you bought it anytime between May 2011 and October 2011.
Why Is It A Good Time?
What does this mean? If you buy a bond today, you will get 4.60% for six months and then 3.06% for another six months. That crushes anything you can get at a high yield savings account. The only thing to remember is that you can’t closed or redeem them within a year and if you redeem it before five years, you surrender the last three month’s of interest. Even with those stipulations, it’s a pretty solid deal.
If you have an old bond with a different fixed rate, you can use my handy Series I Bond rate calculator to find your new rate.
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Hey Jim -
I really want to do this. Where do I go online to purchase these bonds and what is the minimum purchase? If there is a previous entry on your blog that explains all this, just point me to it.
All the best,
Eric
Denominations
Paper I Bonds: Can be bought in $50, $75, $100, $200, $500, $1,000, and $5,000 denominations.
Electronic I Bonds: Can be bought to the penny for $25 or more. For example, you could buy a $50.23 bond.
Information about I bonds – http://www.savingsbonds.gov/indiv/research/indepth/ibonds/res_ibonds.htm
Purchase I bonds – http://www.savingsbonds.gov/indiv/research/indepth/ibonds/res_ibonds_ibuy.htm
Hope this helps,
David M
Thanks for asking the exact questions I need answers to, Eric. I’ll be waiting for Jim’s answers too.
I’ve written about them a few times in the past but this is probably the most introductory post – http://www.bargaineering.com/articles/introduction-to-i-bonds-and-treasury-direct.html
Minimum buy is $50 when you buy a paper bond, $25 if you buy electronically at TreasuryDirect.gov. If you buy paper bonds, the steps are $50, $75, $100, $200, $500, $1k and $5k. Electronically, you can buy to the penny.
Hi Eric -
Try http://www.treasurydirect.gov and you can purchase as little as a $50 bond.
Jessie
You can find all US Treasury bonds at TreasuryDirect – http://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm
You can always get them through http://www.treasurydirect.gov
Yeah, $5k electronic, $5k paper a year.
The $5k in paper is being phased out at the end of this year and there is no plan (currently) to up the limit on electronic bond purchases. =(
Also worth note, the interest earned is tax free if used to pay for education. We’re using our ibond purchases as a college fund for our (future) children.
Just a quick note. I don’t know if this has been mentioned in more recent posts, but they did increase the limit on electronic bonds to make up for dropping the paper. The limits are now $10K for electronic and $5K for paper (available via tax refund).
I would never buy gov bonds because they tax or steal your money and they have over $15 trillion dollars in debt which is impossible to pay back with trillion dollar losses per year.
If a company had a loss of a trillion dollars then they would be bankrupt in no time, but since the gov can print money out of thin air they can last a few more years.
My mortgage interest is 4.5% so it makes more sense for me to pay off my debt than to get a return of 3% after taxes from gov bonds.
It is not 1.5% difference.
The mortgage interest you are not paying by paying it off would have been tax deductable – thus at a 25% federal tax rate, it comes to 3.375% (4.5*.75).
But I bonds can be a gift – I have ones with a 3.6% inflation factor and thus they are earning about 9% right now – NOT BAD!
Thank you Jim, David M, Erik, Jessie and tbork84. My quest begins now!
Everyone, Do not forget that Dec 31, 2011 will be the last day that you can purchase paper bonds. Therefore, the maximum amount that you can purchase effective Jan 1, 2012 in electronic bonds, will be only half as much as you are permitted this year.
P.S. It may be difficult to purchase paper bonds from some Banks even now. But you can still order direct from the U.S. Treasury if they receive your order prior to Jan 1, 2012.
I think your math is off — a 1.5% semi-annual rate is roughly a 3.0% ANNUAL rate and with a 0% fixed rate on top of that gets you to a 3.0% annual I-bond rate (not 4.6%.)
May 2011 to October 2011 = 4.60% ????
Sorry that should be 4.60% APY over that period
hi Jim
Still a little cofused
Mainly on the first part of the calculation
2011 CPI-U was 226.889 and March 2011 CPI-U was 223.467, which gives us a semi-annual (6 month) increase of 1.53% what is the process for this calculation?
You take (226.889 – 223.467)/223.467
thanks for the help clearing that up Jim it sure does help on future decisions on bond purchases.
In your example, where’d you get 4.80%? Shouldn’t it be 4.60%?
Ha you’re right, sorry about that.
Thanks for the quick reply. Can you please answer another question? It may sound simple to some, but I’m not sure of the answer. Sometimes, answers to questions about Federal matters defy simple, logical thinking so I’d like your take on it.
If I purchased an iBond in (let’s say) August of 2011, I understand that the fixed rate component for the life of the iBond would remain whatever it was at the time of purchase. But, would the variable rate component change in three months (i.e. on November 1, 2011), or after six months (i.e. on February 1, 2012)? What about after that? Is it every six months after purchase, or on every May 1 and November 1 regardless of what month during which the bond is purchased? Thanks.
I believe tax free muni bonds are very attractive as well.