New Savings Bonds Rates Announced – I-Bonds More Attractive at 4.8%

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As of May 1st, the Treasury announced that I-Bonds bought from now until 10/05 will earn 4.8%. The fixed component is up from 1.0% to 1.2%, and the inflation-indexed component rises to 3.6%. (For more on how I-bonds work, please see this previous post). For me, my older I-bonds, with a fixed part of 1.1%, pay 4.7% now. Not too shabby, especially since you’re not paying state income tax on the interest.

Also announced was that new EE-bonds will pay a fixed rate of 3.5%, which is not very exciting at all. As I mentioned before, it’s like getting a slightly tax-advantaged 30yr CD at 3.5% with no early-termination penalties after 5 years. Both EE- and I-bonds also have perks when used for education.

It’s nice to see the fixed part of I-bonds go up, it may be a good time to buy some… I will need to do a bit more math to see if it’s worth it to put some short-term money into I-bonds right now. Specifically, I need to estimate the effects of the 3-month early cash-in penalty and the state tax exemption. And make some guesses about inflation – Now where’s my crystal ball…

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Comments

  1. Anonymous says:

    Thanks for your comments on the new Ibond rate. Am looking forward to the rest of your findings and analysis.
    Live Long & Prosper!

  2. Steve-O says:

    I guess this is a really dumb question: The rate on the I-bond is what I would earn annually right? So a $100 investment would earn $4.8 by year’s end. Sorry for the lame question!

  3. Steve-O: There are no dumb questions 😉

    You’d earn 4.8% for the first 6 months, and then a new rate based on inflation for the next 6 months.

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