New I Bond interest rate: 3.06% through April 30, 2012

The U.S. Treasury today announced the new inflation-adjusted interest rate for I Bonds: 3.06% through April 2012. This was a dip from the 6-month rate of 4.6% for the preceding May 1 to Oct. 31 period.

I Bond Nov. to April 2012Although 3.06% is a good six-month rate for a super-safe investment, I predict the Treasury won’t be selling a lot of I Bonds before Jan. 1. Why? Almost everyone interested in I Bonds bought to the maximum before Oct. 31, to capture the 4.6% rate for six months.

(The Treasury puts yearly limits on I Bond purchases. You can buy $5,000 in Treasury Direct and $5,000 in paper bonds. A couple can buy twice that. Paper bonds will no longer be issued after Dec. 31, except as a tax refund.)

Those May-to-October buyers will earn 4.6% for six months, and then 3.06% for six months, for a one-year  rate of return of 3.83%. I Bonds can be sold after one year (with a three-month interest penalty, or after five years with no penalty.)

So if a May-to-October buyer sells out after one year, they will have earned about 3.06% over the year. That is significant – and indicates the high desirability of I Bonds – because:

  1. The best one-year bank CDs are paying about 1% right now and average 0.73%.
  2. A one-year U.S. Treasury is paying a paltry 0.13%.

The new rate: Come Jan. 1, when most of us can buy I Bonds again, this 3.06% six-month rate is likely to look attractive. It means anyone who buys I Bonds before April 30 and holds them for the required one year will earn an interest rate of at least 1.53% over the year, even if they sell out after one year.

If you didn’t buy I Bonds up to the limit before Oct. 31, you missed an opportunity. Still, the new I Bond is preferable to any super-safe investment, including TIPS.

Here is Treasury Direct’s FAQ on I Bonds if you want to learn more.

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2 Responses to New I Bond interest rate: 3.06% through April 30, 2012

  1. Hey Tipswatch,
    I know what you mean, When it comes to investing in bonds, some of the basic concepts regarding bond risks tend to elude investors. Most understand the risks associated with stocks. If you invest in a stock, and its price increases, you make money, if it drops you lose. But bond risk has many different components. One of those risks is how the interest rate and maturity effect bond prices.
    Thanks

  2. Pingback: Investing lessons from the 1950s - completedigitalproducts.com : completedigitalproducts.com

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