New I-Bond Rates

As many of you know, the Treasury updates interest rates for I-Bonds each May 1 and November 1. These updates include both the fixed rate component that will remain for the life of the bond and the inflation adjusted component that will remain in effect for the next six months.

On November 1, 2009 the Treasure announced that I-Bonds issued thereafter (and until the next update on May 1, 2010) will have a fixed interest rate component (real return) of 0.30 %. This is a slight but almost meaningless increase from the prior rate. The inflation-adjusted component of the I-Bond rate was increased to 3.06%. This is a significant jump because the prior rate was actually negative!

Thus, I-Bonds issued between now and May 1, 2010 will be earning 3.36%. That’s better than current short term CD rates but the fixed rate component is less than ideal. If you are debating whether to fund your retirement income plan with a purchase now, I would look first at TIPS bought at auction. Their fixed rate components have been better. You can look again at I-Bonds next spring when the government may have to increase rates to attract more buyers.