If 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).
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.
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 )