I-Bonds -- Semiannual Rate Update

[kork13]

Happy Cinco de Mayo all!

I realized this morning that the semi-annual I-Bond rate update was announced a few days ago, so just passing along the info for those who buy them regularly (or who may have interest):

:::drumroll please:::

Fixed rate: 0.3%
Inflation rate: 1.11%
Composite rate: 2.52%

This reflects a (relatively) significant increase to the fixed rate, previously sitting at 0.1%. This is the first time since Nov'09-Apr'10 that the fixed rate has been at this level.

The inflation rate is about average for the last few years. It's down slightly from the previous 1.24% inflation rate, but higher than the 0.98% inflation rate from last May.

The new composite rate is also the highest since Nov'09-Apr'10 (when it was also 2.52%). By comparison, the highest online savings accounts (according to BankRate.com) are currently 1.5%-2%.

The comparison to online savings accounts isn't perfect, due to the initial limitations involved with purchasing I-Bonds (no withdrawal for 1 year, 3-month interest penalty if withdrawn in the first 5 years)... But for my money, I'm happy to transfer from cash savings at Ally into I-Bonds -- I just put in an order for $5k in I-Bonds, planning to purchase another $5k in November. Typically, I-Bonds have relatively comparable rates to that of 5-year CDs.

For the uninitiated/unfamiliar: I-Bonds (IMHO) are great for holding emergency funds, cash for mid-term (5-10 yr outlook) savings, and as a hedge against inflation. They also have tax benefits which make them good options for college savings (tax-free if used for higher education), and also as a buy-and-hold asset, as they can grow tax-deferred for up to 30 years. Individuals are limited to purchasing only $10k per year per person, but in a family of 4, you can buy $10k/yr in the name of EACH member of your family. So the limit can be overcome somewhat. Also good to keep in mind the withdrawal limitations that I mentioned above.

I've been a fan of I-Bonds for quite a while -- 90% of my EF lives in I-Bonds dating back to 2009, and I'm slowly building up my non-EF I-Bonds as well.

[Snydley]

Thanks for all the I-bond info. We currently have a hefty EF (55K sitting in savings, 25K in a 12month CD at Ally) and I have been thinking of moving some or most of this $ to I-bonds.

question: is there any risk at all to I-bonds vs keeping cash in savings?

[kork13]

question: is there any risk at all to I-bonds vs keeping cash in savings?

Very little risk is involved with I-Bonds.

The bonds are backed by the federal government, so there's basically zero risk to principle & earned interest. It's protected against inflation by the inflation-indexed component of the interest rate. Also of note, if inflation ever dips onto the negative (has happened only twice over the last 20 yrs), the interest earned will never go negative.

The only real risk involved is the withdrawal limitations that I mentioned above -- you can't access the money for the first year after the bond is purchased. Also, there is a flat 3-month interest penalty for calling out the bond during the first 5 years (though that's way better than the penalty most 5yr CDs have). After you've owned them for 5 years, the penalty goes away, and they earn inflation-adjusted interest for a total of 30 years.

[scfr]

Thanks for getting I-bonds back on my radar.