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.
- I Bond Rates for May 2010 through October 2010- 1.74% Total, Fixed Rate 0.20%
- I Bond Rate for May 2011 through October 2011- 4.60 %
- I Bond Rates for November 2010 through April 2011- 0.74% Total, Fixed Rate 0.0%
- November 2009 to May 2010 I Bond Rates- 3.36% Total, Fixed Rate 0.30%