Series I Treasury Bonds

I’ve started looking at alternative (to bank savings account) places for savings.  The Treasury Series I Bonds are currently yielding 2.20%.  This is considerably better than the 0.45% that my local credit union is paying and even better than the 1.35% that FNBO is paying me until the end of the year.

A few facts about the Series I Bond:

  • rate has an fixed component that’s valid for the term of the bond
  • rate has a variable component that’s adjusted every 6 months for inflation (CPI-U)
  • composite rate (fixed + variable) will always be non-negative (>= 0.00%)
  • rates change on May 1 and Nov 1
  • 30 year term
  • cannot redeem within 12 months of purchase (possible exception for natural disasters)
  • if redeemed within 5 years of purchase, penalty is the most recent 3 months of interest
  • purchase limit of $10k per person (SSN) (can also purchase up to an additional $5k with any Federal Tax refund you may have)
  • interest is earned at the end of the month so purchasing the bond on the 1st day of the month earns the same as purchasing on the last day of the month

The current rates (from May 1, 2012) are a 0% fixed rate and a 1.10% .  The new rates will be available in about 6 weeks (Nov 1).  If I purchase today and the fixed rate rises, I will have missed out on the opportunity to purchase the higher fixed rate bonds.  However, it is also possible that the fixed rate could be < 0.00%.  Although 0% is the lowest it’s been in the 14 years worth of data that Treasury Direct (TD) has on the page below.

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