New Series "I" Savings Bond Rates

[RWG1950]

The Treasury's website today shows the new 6 month series "I" savings bond rate to be 6.89%
effective 11-01-22 to 4-30-2023. The prior 6 month rate had been 9.62%.
To learn more go to TREASURYDIRECT.GOV

[FEDUKE404]

The nice rate is now gone.
At least that might explain why the Treasury Direct web site crashed on Thur/Fri.
FWIW, those I bonds have numerous "strings" attached to ownership. . .

[Rapid Robert]

"those I bonds have numerous "strings" attached to ownership. . ."

Other than the initial one year lock up, no different than typical bank CDs.

The current rate, almost 7%, is still far, far above what any bank is offering for CDs. And if by some miracle the rate (at present, zero real rate plus variable inflation component) goes way down, then the penalty for early withdrawal in the first five years would be negligible.

I acquired some earlier this year, and am still debating about whether to pay tax on the interest each year, or defer it to the end. (only taxed by federal, exempt by state). Lower marginal tax rates if paid each year, while waiting will result in a large bump to AGI in a single year and higher marginal rates. I dont' see the educational tax-exempt feature as very useful compared to a 529 plan aka QTP, since investing for future education over 15 or more years should probably be in the stock market, and you can't make partial withdrawals from I-bonds.

One thing I learned from reading some article is that the accrued interest reported at the web site excludes the last 3 months of interest during the 5-year "early withdrawal penalty" period, even though you have still earned that interest.

[kathyc2]

I think they are the best thing going. Interestingly, the current one has a fixed rate of .4%, meaning that even if no inflation it will pay the .4%.

True that you need to keep money in for 1 year unless extenuating circumstances. Also, only 10K a year per person can be put in and people need to buy on their own and not go through financial advisor.

A drawback is that you don't get statements, so I'd suggest printing out the info to keep with important papers in the event the holder dies, so that heirs know they exist. Also, if opting to claim interest annually, I'd print out Sch B to keep with important papers so heirs don't double pay. It's fairly easy to set them up as TOD so heirs don't need to cash them out.

If electronic (not paper) partial distribution can be made.

True that the value shown on treasury direct excludes the last 3 months interest.

[FEDUKE404]

I think they are the best thing going. Interestingly, the current one has a fixed rate of .4%, meaning that even if no inflation it will pay the .4%.

True that you need to keep money in for 1 year unless extenuating circumstances. Also, only 10K a year per person can be put in and people need to buy on their own and not go through financial advisor.

A drawback is that you don't get statements, so I'd suggest printing out the info to keep with important papers in the event the holder dies, so that heirs know they exist. Also, if opting to claim interest annually, I'd print out Sch B to keep with important papers so heirs don't double pay. It's fairly easy to set them up as TOD so heirs don't need to cash them out.

If electronic (not paper) partial distribution can be made.

True that the value shown on treasury direct excludes the last 3 months interest.

A rate of .4% would be a 0.004 payout?
Things work quite well using purchases via TreasuryDirect. You also can track there the specific increases in value of the I bond.
Since it is essentially a 30-year bond, it's probably a good idea to register the bond with a POD named. Such is easily done at the time of purchase, but only one POD name is allowed per bond.

FE

[kathyc2]

A rate of .4% would be a 0.004 payout?

Yep. That's 8 times what my CU is paying on MM funds. The only time that is the max it pays would be during a period of deflation. The .4% will be added on to the inflation component as long as you hold the note, up to 30 years.

Say you buy a bond now. If you look at worst case scenario that in 6 months the inflation component is 0, you would earn 3.55% Calculated as 6 months at 6.89%, 3 months at .4% and three months foregone interest if you cash it out after a year. Since the interest is free of state tax, if your state tax is 5%, the effective rate is 3.72%. It will likely be higher than this, but the absolute minimum is better or comparable to bank CD.

[FEDUKE404]

SAY WHAT? ? ?
In May of this year I purchased the max amount of I bonds. Rate shown at the time was 9.62%.
Today I checked the status of my I bonds, and it now shows a rate of 6.48% **FOR THE BONDS I PURCHASED IN MAY**.
Does that mean the Treasury can change the interest rate on an existing I bond any time they feel like it (well, at least semiannually) ??

[TaxGuyBill]

Yes, the rate is a FIXED amount PLUS the amount of inflation. So it changes every 6 months.

[FEDUKE404]

Yes, the rate is a FIXED amount PLUS the amount of inflation. So it changes every 6 months.

That's what I surmised.

My guess was the underlying "bond rate" IS fixed, and they just play with the inflation factor. Which raises the point that one would think the inflation rate in Nov of 2022 would not be lower than that of ~Apr of 2022. BUT Brandon **did** tell us a couple of times that "inflation is zero" so maybe that had something to do with it??

[kathyc2]

That's what I surmised.

My guess was the underlying "bond rate" IS fixed, and they just play with the inflation factor. Which raises the point that one would think the inflation rate in Nov of 2022 would not be lower than that of ~Apr of 2022. BUT Brandon **did** tell us a couple of times that "inflation is zero" so maybe that had something to do with it??

No need to guess or surmise. The website clearly states how they work for those that choose to educate themselves. https://treasurydirect.gov/savings-b...nterest-rates/

They don't play with inflation component, it comes from the CPI-U. Sept CPI-U (296.808) is 3.24% higher than March (287.504). The 6 month rate times 2 results in the 6.48% annual rate. The vast majority of the increase is from the Mar to June increase (3.06%). The June to Sept increase was basically flat .17% for the quarter which works out to an annual rate of .67%. No conspiracies, just numbers. https://www.bls.gov/regions/mid-atla...l_us_table.htm