New Rates on Savings Bonds

Investors who purchased the Series I Savings Bonds a few years ago are just now realizing some good returns as their fixed-rate portion (as high as 3.60%) is combined with a current inflation-adjusted rate of 4.84%. If inflation continues in the economy Series I Savings Bond holders continue to benefit. However, a purchaser of the Series I bond for the next 6 months will realize a 0.00% fixed rate due to the low level of short-term interest rates. For these purchasers the adjustments in the CPU index will be their rate of return. The Series I-bonds are guaranteed not to return less than 0.00% in the case that the CPI-index decreases for a six-month period. The Treasury Department made the following announcement regarding savings bonds on May 1, 2008:

The Bureau of the Public Debt today announced an earnings rate of 4.84% for Series I Savings Bonds, and a fixed rate of 1.40% for Series EE bonds, issued from May through October 2008. Earnings rates for I bonds and fixed rates for EE bonds are set each May 1 and November 1. Interest accrues monthly and compounds semiannually. Bonds held less than five years are subject to a three-month interest penalty. Both series have an interest-bearing life of 30 years; the EE bond fixed rate applies to a bond’s 20-year original maturity.

I Bond Earnings Rate 4.84%, Fixed Rate 0.00%

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 4.84% earnings rate for I bonds bought from May through October 2008 will apply for their first six months after issue. The earnings rate combines a 0.00% fixed rate of return with the 4.84% 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. The CPI-U increased from 208.490 to 213.528 from September 2007 through March 2008, a six-month increase of 2.42%.

Series EE Bonds Issued From May 1997 Through April 2005

Series EE bonds issued from May 1997 through April 2005 continue to earn market-based interest rates set at 90% of the average 5-year Treasury securities yields for the preceding six months. The new interest rate for these bonds, effective as the bonds enter semiannual interest periods from May through October 2008, is 2.74%. Market-based rates are announced effective each May 1 and November 1. A 3-month interest penalty applies to bonds redeemed before being held five years.

Series EE Bonds Issued Before May 1997

Series EE bonds issued before May 1997 earn various rates for semiannual earnings periods beginning between May and October 2008, depending on dates of issue.

source: savingsbonds.gov