Oct. 31 update: Treasury sets I Bond’s fixed rate at 1.20%, composite rate falls to 3.11%
By David Enna, Tipswatch.com
By Thursday (or possibly Friday) we are going to get a lot of new information about U.S. Series I Savings Bonds: a new variable rate, new fixed rate, new composite rate and potentially new rules for gift-box purchases and — if we are fortunate — an increase in the annual purchase limit.
Technically, these changes will take effect Friday, November 1, but the Treasury has lately announced the new rates the day before, since purchases on that last day — October 31 — will be getting the new November rates. But with TreasuryDirect everything is mysterious, so we get this notice on its main page:
That notice seems to imply you could make an I Bond purchase on Thursday and still get the current 4.28% composite rate. However, when you place an order on TreasuryDirect, it completes on the next business day. So if you purchase I Bonds on October 31, you will “complete your purchase” on November 1, and you will get the new November rate. Do not wait until Thursday if you are making an I Bond purchase and want the current 4.28% composite rate.
Update, Monday 10:05 p.m.: TreasuryDirect updated its homepage notice to reflect that the actual deadline for making an October-registered I Bond purchase is Wednesday, Oct. 30:
New variable rate
Certainty factor: 100%
This one is already set: The I Bond’s new inflation-adjusted variable rate will be 1.90%, down from the current 2.96%, for purchases beginning November 1. It will roll into effect for all I Bonds eventually, depending on the month of purchase.
The variable rate was set by the increase in non-seasonally adjusted inflation for the months of April to September 2024. The increase was 0.95%, which is doubled to determine the six-month, annualized variable rate of 1.90%.
New fixed rate
Certainty factor: 80%
The Treasury does not reveal how it sets the I Bond’s fixed rate, but in recent years I have found a reliable predictor: Take the six-month average of the 5-year TIPS yield and apply a ratio of 0.65. In recent years, this has been an accurate predictor.
The fixed rate is always rounded to the 1/10th decimal point. In recent weeks the formula been pointing to a new fixed rate of 1.20%, and I confirmed that with data through Friday’s market close:
In the chart, I have included the 10-year real yield as a check. It also predicts a fixed rate of 1.20%. This is not a certainty, but a hopefully an accurate forecast.
New composite rate
Certainty factor: 80%
The new variable rate will be 1.90%, and if the fixed rate is set at 1.20%, the I Bond’s new composite rate for purchases from November 2024 to April 2025 will be 3.11%, down from the current 4.28%. For I Bonds with the 1.3% fixed rate, the new composite rate will be 3.21%.
While these rates look low compared to current 4-week Treasury yields (4.89%), keep in mind that the permanent fixed rate is much more important than the variable rate or six-month composite rate. A fixed rate of 1.2% or 1.3% means you will get a yield higher than inflation, with total safety, for potentially 30 years.
Plus, as the Fed continues is rate-cutting path, short-term T-bill yields should be falling through much of 2025. I Bonds are best used as a medium- to long-term cash-equivalent investment.
Gift-box purchases
Certainty factor: 50%
As I noted in an article last week, TreasuryDirect is sending emails to its customers with I Bonds stored in gift boxes to deliver those gifts “as soon as possible.” You can read more about that here: “Deciphering TreasuryDirect’s mysterious gift-box email“.
Nothing is certain because the Treasury isn’t giving us full information. But it does appear it wants gift-box purchases to be delivered quickly, either this year or early next year, even if those deliveries would exceed the recipient’s annual purchase limit of $10,000. And that is exactly what many people have been doing (including me), without any problem. See this Bogleheads thread for more discussion.
So it looks like changes are coming to the gift-box program. It may be eliminated entirely for new purchases, either as of November 1 or January 1. Or it may be scaled back to its original purpose, to grant small gifts to grandchildren, for example. Or … nothing will happen and we can shake our heads.
I hope we learn more on Thursday or Friday.
Increase in the purchase cap
Certainty factor: 35%
Several callers to TreasuryDirect have gotten feedback that “changes are coming” to the savings bond program. Plus, recall that the $5,000 paper I Bond option in lieu of the federal tax refund is being eliminated as of January 1.
Here is what I suspect (or maybe it is just my wishful thinking): The Treasury will scale back or eliminate the gift-box program, while at the same time raising the savings bond annual purchase limit to $20,000 or even $30,000.
High use of the gift-box program should have sent a strong signal to the Treasury that the $10,000 purchase limit is too low to meet the demand of even small-scale investors.
When I Bonds were first created in the fall of 1998, the purchase limit was $30,000 per person per year. However, ten years later, the Treasury determined about 98% of all savings bonds were purchased in amounts under $5,000. This triggered a new policy in 2008: a $5,000 limit per calendar year.
The current limit of $10,000 per person went into effect in January 2012. If that $10,000 limit had been adjusted for inflation since 2012, it would be about $13,700 today.
Clearly, it is time to raise the purchase limit. Will it happen? Maybe, maybe not. But I hope we find out on Friday.
• Confused by I Bonds? Read my Q&A on I Bonds
• Let’s ‘try’ to clarify how an I Bond’s interest is calculated
• Inflation and I Bonds: Track the variable rate changes
• I Bonds: Here’s a simple way to track current value
• I Bond Manifesto: How this investment can work as an emergency fund
* * *
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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.
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New rates just announced. 1.2% fixed rate. 👏🏼
Back on October 21, In his own comment on the still-in-progress Bogleheads thread on this subject, David described the situation as “a monumental failure by TreasuryDirect in giving clear directions or meaning.”
And it’s clear that the failure is still in progress. The telephone explanations given by TreasuryDirect representatives seem to change from caller to caller and day to day, but, out of the many “mouths” through which TreasuryDirect is speaking, it’s still not clear whether any of them actually speak with absolute authority and access to the facts–and, if so, which ones.
Meanwhile, to the best of my knowledge, the only thing actually distributed by Treasury in writing remains the original e-mail telling people holding undelivered gift bonds to deliver them “as soon as possible.” But even then it’s not clear whether such action was intended to be taken only by people who actually received the e-mail, but not by people who didn’t. And now we have a new twist in which people who did what they were told, and delivered all their gift bonds, regardless of dollar amount, may find themselves barred from making future purchases in their individual non-entity accounts for an undetermined number of years. (“You’re barred from buying more I Bonds for the next [insert number] years.” “But you told me to deliver my gift I Bonds ‘as soon as possible.'” “Gotcha! I didn’t say ‘Simon says.'”) If in fact that supposed policy is actually “a thing” or just the latest guestimate of some phone reps flying blind.
The entire situation cries out for a single, authoritative, and unambiguous statement from the executive level of Treasury Retail Securities–but that seems nowhere in sight.
Just wanted to add this info. I have already purchased my 2024 limit ($10k) for me but I was able to purchase $10k gift for my spouse. My spouse did the same for me.
I tried to deliver a gift I bond this morning that was issued on 10-23 and got this message:
The savings bond you selected cannot be delivered at this time. Savings bonds must be held in your account for 5 business days after purchase was completed.
How much longer do I need to wait? A day?
Edited: Actually, the TreasuryDirect directive says the gift-box savings bond must be held for “5 business days,” so it’s possible the cutoff will be Oct. 31.
I just called Treasury Direct and was told that if we are gifted and/or purchase Ibonds in excess of the $10k limits this year, we will not be able to buy or receive any in 2025 due to exceeding the limit this year.
Well, there’s a new angle. Or new weirdness?
It’s hard to imagine TD encouraging everyone to deliver gifts box I Bonds now AND ADTER THE FACT explaining that there is a penalty for following their directions. That’s whacky even for them. Plus it’s illogical since people can receive gifts of different amounts. More likely, TD was referring to the purchase limit only. But as with all of this, I can’t confirm it until they do with something in writing.
I clarified multiple times with them, especially about receiving the gifts as the receiver has no control over when gifts are sent to them. The person I spoke to repeatedly said they would be locked out of receiving or purchasing for all of 2025. This whole thing is very frustrating.
I’m sure you did, but that’s not written anywhere including in the email urging folks with gifts to deliver them as soon as possible. Talk to a different TD rep, you’ll get a different answer as many have done and posted online without hearing that. They are officially only telling us what they want us to know and do. I agree it’s frustrating. Incomplete or contradictory information due to incompetence, indifference, or intentionality always is. We just don’t know which of those things is in play.
Kaleidoscope, the TreasuryDirect site says: “Savings bonds you purchase as gifts aren’t included in your annual limit. The purchase amount of electronic savings bonds you transfer, deliver as gifts, or de-link to another TreasuryDirect account holder is applied to the annual purchase limit of the recipient. It is applied in the year the bonds are delivered to the recipient’s account.”
https://www.treasurydirect.gov/research-center/
Clearly: Applied to the purchase limit in the year the bonds are delivered. It’s possible the Treasury is changing that rule and will announce something later. Or not. I appreciate hearing about your conversation because it amplifies the confusion TD customers are experiencing this week.
This would actually be OK with me because the I Bonds I delivered this week were going to be delivered in early 2025 and 2026, so I would have filled my purchase limits for those years anyway.
Again, I hope we get clarity later this week.
Sorry, I meant the representative told me you would not be able to purchase any for yourself for the entire year. I should have written that more clearly.
Yes, that makes more sense.
As a world-renowned options expert and author, you are accustomed to clarity and certainty as options are enforceable contracts: the strike prices are known, the bid and ask is available during trading hours, the expiration dates are certain and custody is with the broker of choice – like with marketable Treasury securities at Fidelity or wherever.
With these I savings bonds, we cannot choose the custodian (as least as of now) and we do not know what required action, if any, might be coming out for the gift box given the recent general/vague emails. Extra work and worry when the rules are not spelled out and clearly documented. However, for the guaranteed repayment, purchasing power protection and semiannual compounding, I will still put up with it.
If you think I am a world-renowned options expert, you need to fire your AI chatbox and just read my “About Me” page … https://tipswatch.com/about/
When you said “exceed the limit”. did you mean your account had 20,000 I-Bonds Purchased / delivered from a gift box in 2024 so you could not buy any in 2025?? Or was the limit exceeded by a smaller amount???
The Treasury Direct rep said if the $10,000 limit was exceeded in 2024 (total per person for self-purchase and any amount delivered as gift), then that person would not be allowed any self-purchase or gift delivery for the entire year of 2025. I was pretty surprised as I hadn’t heard anyone report that since the Treasury Direct email came out.
Wednesday afternoon: There is a similar post in the Bogleheads forum about the potential ban on future purchases if gift-box purchases in 2024 exceed the recipient’s limit. So, yes, this appears to today’s party line from TreasuryDirect. Leaves me with many questions.
And note this latest statement from the rep (as reported @Bogleheads) suggests that the ban might be a 1-for-1 year ban. i.e. if you “over-deliver” by 30K your ban would be 3 years.
Obviously this is not even close to confirmed. But it’s also a hint that they might *not* be raising the purchase limit above $10K/person/yr. After all, there’s some logic that if you’re allowed to deliver 2 years worth early, then you forfeit your ability to purchase for 2 years. Sort of fair, though doing it retro-actively without announcing the terms would be poor form. But less logical would be a 2 year ban with limits increasing to, say, $30K/yr in 2025. This would be an actual penalty to those who followed the early-delivery instructions.
This was not well thought out.
I don’t see how TD can actually be encouraging gift deliveries as soon as possible without regard to the annual limit as official policy as stated in a letter posted to their website and sent out in waves to purchasers, and then turn and institute an unannounced penalty of any kind after the fact. That’s seems whacky even for TD.
David, Thank you for all the time and effort you put into the website. You’ve really created a clearinghouse for solid, helpful information. I’ll provide a personal experience to hopefully add to your knowledge base. In regards to selling Ibonds, since they are electronic, you don’t have to sell them in the same quantity that they were purchased. Recently, I helped a relative “exchange” some zero fixed rate Ibonds for the current 1.3% fixed rate Ibonds. No purchases had been made in 2024, so we wanted to buy the $10,000 limit amount now. A $10,000 purchase was made a couple years ago and the value had grown to $11,000+. Since the annual purchase limit is $10,000, we really only needed to get $10,000 cash from the old zero fixed rate bond, not the full $11,000 value, in order to “exchange” for new one. I was surprised by the functionality of the Treasury Direct website.
The sale/redemption process online (please forgive me for not using the appropriate terminology) allowed me to enter the whole dollar amount (as a multiple of single dollars!!) that I wanted. The resulting cash from the sale was within $50 of the $10,000 needed for the new purchase. The best part was that I could choose the sale in single dollar amounts so that it left $1000 face value (plus accumulated interest) in the account. That $1,000 round number was nice to have for mental accounting going forward. So it really meant that we could sell $9,000 face value plus accumulated interest that got us really close to the $10,000 cash needed for the new purchase. The little extra needed to total $10,000 came from other cash in the bank. This transaction allowed us minimize realized taxable interest when exchanging old bonds for new bonds.
Our “sell” transaction was completed early in October with money going to the connected bank account, and the “buy” transaction was completed in late October with money coming from the same connected bank account. So a little bit of extra interest was earned at the bank. Although all these Ibonds are intended to held for the long term, it would appear the website allows you to sell any small amount (maybe at least $25?), regardless of the quantity originally purchased. For this transaction, that made me a rare person that was pleased with the website. Best regards. P.S. Sorry I don’t have the exact transaction figures to better illustrate my point.
This is a good reminder that you can redeem small amounts of I Bonds, if you wish, and retain the rest. I always redeem the entire amount because I am wary of keeping track of odd-lots in the future. But that’s not really a huge concern. (You are correct that the minimum redemption is $25.)
My wife and I and my business made our $10,000 purchase limits for 2024 today for a total of $30,000. We both have October 2022 0% fixed rate I Bonds in our gift boxes, which I’m considering delivering, redeeming into our C of Is, and purchasing new 1.3% I bonds in our gift boxes and delivering again before the end of the year. I’d have to being the execution this today to have the funds by tomorrow for the purchases to process on 10/31.
Does this conversion plan make any sense?
These are our only remaining 0% fixed rate I Bonds, we also have a $5,000 0.4% fixed rate paper I Bond that I’m converting to electronic, but that will take a few months.
My wife and I and my business purchased our $10,000 limits today (for a total of $30,000 in 2024). We both have 0% fixed rate I Bonds purchased in October 2022 in our gift boxes purchased. Thinking of delivering them, redeeming into our C of I and then purchasing new gifts at the 1.3% fixed rate and delivering again before the end of the year. These are our only remaining 0% fixed rate I Bonds (we have a $5,000 tax refund paper I Bond at 0.4%). Does this conversion plan make sense in the current gift box delivery environment?
David, whatever else happens, I will give you credit for the late Monday “day before the end of the month deadline” correction by the Treasury!
I hope we will soon be giving you credit for an increase in the annual purchase cap!
This A.M.
Rate Change Deadline: To receive the current 4.28% rate for I Bonds in TreasuryDirect, you must request your purchase by 11:59 p.m. Eastern Time on Wednesday, October 30. Learn More https://www.treasurydirect.gov/help-center/faqs/savings-bond-faqs/#i-bond-rates .
I saw that last night and updated the article to reflect the Treasury’s correction.
Mr. Enna-
Thank you for letting us know what happened and keeping us informed. Your work is excellent and timely.
I did pull the trigger today (scheduled for 10/30) and bought individually, in entity accounts (extra paperwork via post office and beneficiary designation aggravation) and gifts. Primary reason is to lock in the 1.3% fixed and also:
Twenty+ years of savings bonds purchases WITHOUT 1099-INT so far
No state/local taxes will be paid (hopefully) upon redemption
Six months of unadjusted CPI-U is known ~20 days prior to announcement.
Food and Energy included in CPI-U
GIFT BOX (free type of irrevocable trust for estate exclusion)
Semiannual interest compounding
Do not know where else to put cash
FYI – the usual good communication from Treasury Direct. Purchase amounts already shown as cash debits in checking account when logged in at 5 a.m. oct 30. Working as expected so far.
From: “treasury.direct@fiscal.treasury.gov”
To:
Sent: Tuesday, October 29, 2024 at 05:25:59 PM EDT
Subject: New Purchase
Dear :
A purchase has been scheduled in your TreasuryDirect account on 10/29/2024. For more details, go to the History tab and click Security History. If you have a question about this activity, please call (844) 284-2676.
Thank you for using TreasuryDirect.
This looks “all good.” Buying on Tuesday was the correct way to go.
Tomorrow or Friday is a big day as you point out Mr Enna.
I ended up buying more I savings bonds yesterday than planned given the risk of lower fixed rate to 1.1% (credit Bob Brinker JR) or even lower. The 80% forecast of 1.2% is obviously solid and rational based of the facts you clearly present.
Just noticed that TreasuryDirect updated its rate change deadline. It now correctly states “you must request your purchase by 11:59 p.m. Eastern Time on Wednesday, October 30.”
Thank you for alerting me. I have updated the article, feel good about being right, and appreciate that Treasury officials are reading my website. (Maybe).
Does anyone have persoal experience trying to RECEIVE/redeem more than $10k from the gift box in a year to know if the TD site actually prohibits this activity? One theory is that the gift box loophole created a loophole on the BUYING side, but that it was never enforced that you could not receive more than $10k in a year. I would assume that if you did redeem from a gift box that additional purchases were denied. Again, that would make sense if the check was only on the purchase side. Perhaps they don’t want to manage large gift boxes that don’t really have a tangible impact. Just a guess. They could adjust the website to prevent the purchase to the same recipient over $10k to limit the future “abuse” of this loophole.
No one can “redeem” from the gift box. The I Bonds have to be delivered to the named recipient before they can be redeemed. And then, most likely, the I Bonds could be redeemed. I haven’t done that, however.
Whatever happened to that bipartisan bill that was introduced in the Senate a couple years ago to raise the limit of I-bond purchases?
That one from was dead on arrival. I wouldn’t say it was actually “bipartisan,” but a stab a Biden’s rampant inflation problem at the time. More: https://tipswatch.com/2022/02/22/should-the-treasury-raise-the-i-bond-purchase-cap-to-100000/
In my opinion, the more realistic explanation for the mysterious gift delivery urgency is the migration to a new website. I have experience in this area and oftentimes, some functionality is difficult or impossible to port from an old to a new hosting platform. I’m guessing the contents of the gift box fall into this category. It’s much easier to have gift buyers reliever their old gifts in the old system than to have TD Tech. Support have to do it manually after the fact.
I would not be surprised if Treasury ended all new purchases of savings bonds with the goal of shutting the whole program down in 30 years (after the newest bonds mature). The program is pretty much a boondoggle, with arcane rules, arcane web site, secretive decision making on the fixed rate, ridiculously complex forms, and very poor customer support. Of course, as a government-run program, some government workers would say those are all good reasons to keep it going.
At this point, I don’t believe the savings bond program will be eliminated.
The odds of that happening with such a popular savings bond program that provides inflation protection, no state income tax on earnings, and no federal income tax at all when used for education expenses is slim to none, in my opinion — especially after its popularity just a few years ago when inflation spiked unexpectedly. Expect a website migration or some rule changes at most.
I will go out on a limb and say the new fixed rate will be 1.3% or higher – 1.6%?! One can only dream. With the low inflation of the past 6 months and the currently trending higher rates all treasuries, 3.1% would be unattractive compared to 5 year CDs.
If the TIPS yields continue to climb, the 10 year auction next month is worth a serious look.
Based on my investment time horizon and tax situation, I am sitting out of this year’s IBONDs unless fixed rates are higher.
It’s a choice we all have to make: buy now, or wait? “Bird in the hand,” or “two in the bush”–with the possibility of learning that there weren’t two in the bush after all?
I assume you know that, although the current 1.30% fixed rate looks paltry when compared to the early years of I Bonds, it’s nevertheless the highest fixed rate since 2007, i.e., before the great financial crisis.
https://www.treasurydirect.gov/savings-bonds/i-bonds/i-bonds-interest-rates/
If the fixed rate does actually go up, my wife and I will certainly be buyers again, in multiple accounts. Meanwhile, redeeming some old I Bonds with 0% fixed in order to “recycle” the proceeds into new bonds at 1.3% fixed seems desirable, i.e., 1.3% above CPI for a potential span of 30 years seems “good enough,” indeed attractive, compared to what was just redeemed.
The Treasury doesn’t pay much attention to the six-month composite rate. Look at EE Bonds, with a fixed rate of 2.7% and a potential return of 3.5% if held for 20 years. I Bonds are meant to be a very safe, tax-deferred, longer-term investment, and so the higher fixed rate is the important factor. There is no guarantee that a 5-year CD yielding 4.0% will end up exceeding inflation by 1.3%. It could, but there is no guarantee.
Speaking of the EE, care to guess what the treasury will do here? Love to see them drop the doubling to 15 years.
I suspect that the EE fixed rate will remain close to where it is today, at 2.70%, and also that the 20-year doubling period will remain the same. I haven’t hit on a formula for predicting the EE fixed rate.
I also can’t help but wonder if the Treasury will surprise everyone and raise the fixed rate. I hope the formula works, as I would be disappointed buying another $10,000 of I Bonds only to learn the next day I would have been better off waiting. I don’t think the Treasury has raised the fixed rate more than expected in the last decade, but without a publicly disclosed formula anything could happen.
Justin, until a month ago I was concerned that the Treasury would look at the trend of declining real yields and set the fixed rate lower than the formula to compensate. As recently as Sept. 24, the 5-year TIPS real yield was 1.41%, just 11 basis points above the I Bond rate of 1.30%. But since then, the real yield has increased to 1.80%. So that worry is gone. If you look at the chart in the article, the average real yield from Nov 2023 to Apr 2024 was 1.94%, and we are still below that. There is no way the Treasury is raising the I Bond rate above 1.3%.
However, my one qualification is a thing I have repeated hundreds of times: “The Treasury sometimes does weird things.”
Thanks, David. I agree with your analysis that the data don’t support an increase. As an anxious investor, I just have a tendency to start second-guessing my decisions at the last minute.
Hopefully with the avalanche of questions falling on Treasury Direct, they will put out a clear communication, or at least better than they have. This site is absolute best for negotiating through all of this.
I have already bought 30k max for 2024 but I am thinking of buying 20k at 1.3% as gift for 2025.
Great post, as always. I bought my $10k limit for 2024 today to lock in the 1.3% fixed rate.
Regarding the new composite rate… 1.90% variable + 1.20% estimated fixed = 3.10% composite, how did you arrive at 3.11% for the new composite rate? Earlier rounding?
“The new variable rate will be 1.90%, and if the fixed rate is set at 1.20%, the I Bond’s new composite rate for purchases from November 2024 to April 2025 will be 3.11%“
The Treasury’s formula for the composite rate factors in the effect of compounding, and a higher fixed rate will add a small amount to the simple sum. This is the formula: Composite rate = fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate). I have an Excel spreadsheet set up to make the calculation easier.
The composite rate gets a slight bump because it is more than just adding the fixed and variable rates. The Treasury uses the following formula to calculate the composite rate:
Fixed rate + 2*semiannual variable rate + fixed rate*semiannual variable rate
If the fixed rate is 1.2%, the new composite rate will be
0.012 + 2*0.0095 + 0.012*0.0095 = 0.031114
Rounding gives 0.0311 or 3.11%
David, as long as Treasury keeps diddling with its I Bond rules and TreasuryDirect account features, there will always be an endless supply of new “raw material” ripe for interpretation on the Tipswatch website. If I didn’t know that you’re already formally retired from your journalism career, I’d say that represents real “job security.” 🙂
Thanks for all you do here.