I Bond Rates for November 2009 to May 2010

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After a 6 month period (May 2009 to November 2009) where I bonds effectively earned a 0% rate of return for the period, the increase in the CPI-U from negative (deflationary) to positive (inflationary) pushed I bonds back into positive yield territory.

November 2008- I Bond Earnings Rate 3.36%, Fixed Rate 0.30%

The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 3.36% earnings rate for I bonds bought from November 2009 through April 2010 will apply for their first six months after issue. The earnings rate combines a 0.30% fixed rate of return with the 3.06% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The fixed rate applies for the 30-year life of I bonds purchased during this six-month period.

Here’s how the composite rate for I bonds issued November 2009 – April 2010 was set:

Fixed rate = 0.30%
Semiannual inflation rate = 1.53%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
Composite rate = 0.0030 + (2 x 0.0153) + ( 0.0030 x 0.0153)]
Composite rate = [ 0.0030 + 0.0306 + 0.0000459]
Composite rate = 0.0336459]
Composite rate = 0.0336
Composite rate = 3.36%

Since I bonds are tax-deferred, they can be an useful option to diversify your tax liabilities as part of your overall asset allocation plan. As I have mentioned before, I bonds are also tax free if used for education, so they can be part of your education savings plan as well.