I Bond Rate for May 2012 through October 2012- 2.20 %

by RC on May 15, 2012

May  2012- I Bond Earnings Rate 2.20 %, Fixed Rate 0.0 %

I bond rates were lowered again for the 6 month period of May 2012 to November 2012, which is reflected in the 6 month offering period for I bonds, with a semi-annual inflation rate of 1.10%, and an overall return of 2.20% for the next  6 months.  This is a decrease from the previous 6 month period which had a total return of 3.06%. The fixed rate component, which is added to the inflation rate, is again 0.0%. (The fixed rate portion has remained at 0% since November 2012.

I bonds must be held for at least 1 year. But if you buy them at the end of the month, you get credit for the whole month, effectively making it a minimum of 11 month holding period. If you cash I bonds in before 5 years, you lose 3 months’ worth of interest.  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 2.20 % earnings rate for I bonds bought from May 2012 through October 2012 will apply for their first six months after issue. The earnings rate combines a 0.0% fixed rate of return with the 1.10% semi-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, but since it is  0.0, it doesn’t really come into play for this 6 month offering period.

Here’s how the composite rate for I bonds issued May 2012 – October 2012 was set:

Fixed rate = 0.00%

Semiannual inflation rate = 1.10%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]

Composite rate = [0.0000 + (2 x 0.0110) + ( 0.0000 x 0.0110)]

Composite rate = [0.0000 + 0.0220+ 0.0000000]

Composite rate = 0.0220

Composite rate = 2.20%

Since I bonds are tax-deferred, they can be a useful option to diversify your tax liabilities as part of your overall investment strategy.

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.

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