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Series I Bonds Look Attractive Right Now

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Treasury Direct Series I Savings BondsIf you’re a buyer of Series I Savings Bonds, you probably already know this. If you haven’t been paying much attention to them, it might be time to perk up because Series I bonds are looking pretty good given right now. So good that I decided to purchase some of them.

Opening Treasury Direct Account

Fortunately, I opened up a Treasury Direct account a while back and had my bank account linked up so I could skip the setup process. I don’t know if the setup process still only takes five minutes, as I had written, or if it was more complicated now. I do know that Treasury Direct will be sending out new access cards for security purposes, so perhaps the setup process is a little more involved now. Regardless, I was able to find my login credentials (if you lose them, getting your ID requires a tremendous amount of information, the government doesn’t mess around)

If you aren’t familiar with Series I Bonds or Treasury Direct, you can review this primer on them, it should get you up to speed. Everything is still accurate except the annual limit per SSN has been lowered from $30,000 to $10,000 ($5k online, $5k in paper).

New Rates

The Series I Bonds’ interest rate is calculated through a fixed rate and a semiannual inflation rate. The fixed rate is announced every May and November and is valid for all bonds issued during the six month period after the announcement and is valid for the life of the bond. Last November, the announced fixed rate was 1.20%. The inflation portion is also announced every May and November and is based on the CPI-U (Consumer Price Index for all Urban Consumers) and can be reasonably predicted. It’s predicted that the announced inflation portion of the rate will be approximately 2.416%.

If you take that to be true, using the total rate calculation, you’ll get an annual rate of 6.06% – which is nearly double most online savings accounts. That’s why we’re getting some Series I Bonds. By purchasing in April, we lock in the fixed rate portion of 1.2%. This gets us 4.38% for six months then 6.06% for another six months, with the future unknown. What’s nice is that the interest is federal tax deferred (until you cash in the bond) and state & local tax free, so the effective rate is a little higher depending on your state taxes.

Redemption Rules

The only important rules about Series I bonds is that you can’t redeem them for one year and if you redeem it before it’s five years old, you surrender 3 months of interest (most recent three months). Also, in case you were interested, savings bonds are nontransferable so don’t buy them off anyone. And lastly, when you redeem the bonds you will receive a 1099-INT.

If you want more information, here’s the Treasury Direct page on Series I Bonds, which includes a list of historical rates (fixed and inflation) as well as the equation they use to calculate the composite earning rate.

(photo by allyrose18)

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9 Responses to “Series I Bonds Look Attractive Right Now”

  1. ebow says:

    I set up a Treasury Direct account on Thursday evening, and hit a roadblock–they had trouble verifying the information I provided, probably for my joint ING account. So now I have to fill out an Account Authorization form (a paper form) which needs to be signed by “acceptable certifying individuals includ[ing] authorized employees of insured depository institutions and corporate central credit unions.” And the right person at my credit union was not in on Friday, so I’ll have to wait until Monday, then drop it in the mail, and wait well past this April opportunity to get access to my account.

    So I would say that the account setup process has gotten a little more complicated. ;^) Be sure to leave yourself plenty of time if you haven’t set up an account yet!

  2. Anonymous says:

    It was easy to set up a Treasury Direct account, however you have to wait 7 to 10 days to get the access card via the mail before you can purchase on-line. So no quick purchases, unless you have your access card.

  3. I’ve had a treasury direct account for quite a while, but I stopped using it after the first time.

    I don’t know if the access card makes things better (I’m betting it doesn’t), but I think that the site is one of the most unusable I have ever seen. The ridiculous virtual keyboard that generates a random order for the keys to prevent a key logger from stealing my passwords is a lot of overkill, as far as I’m concerned. I would have been willing to put up with it, however, if they would send a paper version of the savings bond to the nieces and nephews I purchase bonds for. Instead, apparently, I was supposed to convince their parents to create accounts on Treasury Direct also. The site is hard enough to use for a person comfortable with technology – no way was I going to subject my non-technical relatives to it!

    When I got the email about the new access card, I tried to post some feedback on their site about the crappy user experience. Of course, that was also a pain because comments could only be 1000 characters long, but the site doesn’t mention this (and in fact, even the error message just tells you that the text is too long, not by how much). Ugh. The response I got from them was equally unhelpful. They basically told me it was for my “protection” and to pound sand. Not that I really expected anything better from the government, but I was slightly hopeful that they would tell me that the access card would make things easier. Since they didn’t say that, I’m assuming it just makes things more complicated.

    Anyone have any suggestions for how to purchase savings bonds more easily? Standing in line at my bank is what I do these days, but I inevitably get the teller who has no savings bond experience so it can be a real pain.

  4. Linda says:

    Does the interest compound? If so, how often — I could not see anything about compounding on their website’s description of rates and terms.

    Thanks – Linda

  5. jim says:

    From the TreasuryDirect site, it says that “Interest is compounded semiannually.”

  6. Ben says:

    Am I too late? What’s the difference in getting them now as opposed to before May 1st? Thanks in advance.

  7. Allen says:

    According to the treasury direct website:

    http://www.savingsbonds.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

    the new fixed rate as of May 1 is 0.0%, which means that you will basically just get the inflation rate, which is 2.42% semi-annually (~4.8% APR), which is still pretty good deal, just not as good.

  8. BillyCrash says:

    Note you can purchase $5,000 annually per person for your Trade Direct account, and additionally, can purchase $5,000 per person in paper bonds annually.

    I miss the old days when there was no annual limit and when you could pay with a credit card online. Man, I racked up back then.

  9. Alex says:

    Annual limit is 5K that includes paper and electronic.

    “The annual limitation on purchases of United States Savings Bonds has been set at $5,000 per Social Security Number, effective January 1, 2008. See the press release.”


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