Current Series I Savings Bond Rates (May 2014 Update)

by Michael on May 2, 2014 · 7 comments

Photo of Old Bond Certificate

I’m a day late with this info, but… The Treasury has announced the new Series I Savings Bond rates, effective May 1st, 2014.

As a reminder, I-Bond rates are pegged to inflation estimates, though there is also a fixed component set by the Treasury. Rates are updated twice a year on May 1st and Nov 1st.

The inflation component is variable and reflects recent changes in the CPI-U, whereas the fixed component is a premium to inflation, and thus represents your “real” return (ignoring taxes).

The CPI-U increased from 234.149 in September 2013 to 236.293 in March 2014. That’s a semi-annual increase of 0.92%, calculated as follows:

236.293 / 234.149 = 1.0092

Doubling that gives us an annual (variable) rate of 1.84%, which is a bit higher than the 1.18% from last fall. To that, we need to add the fixed rate. The fixed rate stood at 0.20% last fall and dipped to 0.10% this time around.

So… If you buy between now and October 31st, 2014 you’ll lock in that 0.10% fixed rate and receive a composite rate of 1.94% for the subsequent six months. After that? Who knows. Your guess is as good as mine.

Buy now or later?

When deciding whether to buy now or wait to see if rates improve, there are a couple of things to consider. As alwys, there is an annual purchase limit of $10k so, if you’re interested in accruing I-Bonds, you don’t want to wait forever and miss out on your current allotment.

You also need to weigh the likelihood of getting a better (or worse) fixed rate by waiting for the next update vs. what is available right now. As you’re likely aware, the fixed rate landscape has been rather bleak in recent years. In fact…

Looking back to 1998 when I-Bonds were introduced, the fixed rate was 3% or higher (wow!) through November 2001, at which point it started slipping. It first hit 0% in May 2008 and, though it bounced up a bit in the subsequent two years, it returned to 0% in November 2010 and stayed there until November 2013.

While the fixed rate blipped up to 0.20% last fall, it fell back to 0.10% in the latest update. So if you bought your 2014 bonds prior to May 1st, you’re doing a bit better than those who waited. There will be another update in November, so you can roll the dice and wait if you wish.

As for us, we usually buy our I-Bonds as early as possible, but I’ve been swamped this spring and didn’t get around to it. Thus, if we end up buying our 2014 allotment, our fixed rate will likely be a bit lower than it could have been. C’est la vie.

And no, we didn’t do the “extra $5k with your tax refund” trick this year. The rates just aren’t good enough to continue tempting me to jump through hoops to stretch our limit. If/when rates increase, we may reconsider.

1 Kathy February 1, 2013 at 1:02 pm

I would do it ASAP, too!

2 John February 1, 2013 at 7:25 pm

If I have a mortgage would it not make sense to pre-pay it off rather than buy IBonds? Or am I missing something and over simplifying?

3 Michael February 1, 2013 at 7:44 pm

John: No, I don’t think you’re missing anything. We paid off our mortgage a few years ago so our situation is different from yours. If I currently had a mortgage, then I would likely put the money toward paying it off instead of buying I-Bonds.

4 Mike Griffith April 16, 2013 at 6:47 pm

Really enjoy your blog and I’m book marking your articles on I Bonds. My wife and I have over $50K in I Bonds and plan on purchasing more.
I understand I Bond interest can be tax-deferred for federal income tax purposes. That is, I have the choice of reporting the interest each year as it accrues, or reporting all of the interest earned in the year in which I redeem the bond. I’ve never reported annual interest and I remained in the 25% tax bracket upon retirement so I wouldn’t ever have the opportunity for income shifting.
Wondered if you might consider doing an article on this subject and recommending a strategy between the two approaches.
Thanks for your time and keep up the great work!
Mike Griffith
Santa Rosa, CA

5 krantcents October 31, 2013 at 8:23 pm

Fixed income should be part of every portfolio! It can be achieved with bonds, annuities, pensions, or Social Security.

6 Jimbo May 2, 2014 at 1:24 pm

And we are to trust the government #’s on inflation?

7 Debbie M May 2, 2014 at 8:33 pm

I’m starting to think that good rates for things like these are only for first adapters because everyone’s scared of something new. I-bond rates have plummeted. Online “high-interest” savings rates have plummeted.

Target’s RedCard is still reducing Target bills by 5%, but I don’t know of anything else that’s new enough to have good rates.

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