I Bond return jumps to 1.94%

Savings bonds

Here's a little glimmer of hope for savers: The return on inflation-adjusted savings bonds will get a significant boost over the next six months.

The U.S. Treasury has just set the total return on Series I Savings Bonds to 1.94% for all bonds sold between May 1 and Oct. 31. That's up more than half of a percentage point from last fall.

The yield is better than you can earn on most CDs or money market accounts.

We knew in April the total return would be at least 1.84% based on a measurement of inflation over the previous six months. But the inflation rate isn't all that goes into the total return you'll see from I Bonds.

The Treasury Department also applies a fixed rate, which it set today at 0.10%, down a bit from last fall.

Series I Savings Bond Rates, 2010-2014

Date Rate
Nov. 2010 0.74%
May 2011 4.60%
Nov. 2011 3.06%
May 2012 2.20%
Nov. 2012 1.76%
May 2013 1.18%
Nov. 2013 1.38%
May 2014 1.94%
Source: TreasuryDirect.gov

The beauty of I Bonds is that the federal government tries to at least guarantee your money will keep up with inflation.

But the total return on these safe investments had been in a steady decline until last fall, when the rate on newly issued bonds climbed from 1.18% to 1.38%.

The total return on an I Bond is calculated by adding the fixed rate to the inflation rate, which changes every six months. The fixed rate is determined at the time you purchase your bond and does not change for as long as you own the bond.

The inflation rate is calculated by the changes in the Consumer Price Index and shows the annualized inflation rate over the past six months.

Here's how Treasury figures the inflation component:

The CPI-U for September 2013 was 234.149, and the CPI-U for March 2014 was 236.293. That represents a six-month increase of .92%. To get the annualized rate, you multiply by two.

That's 1.84%.

Newly issued I Bonds will pay more than all but the best nationally available 5-year CD rates. The top deal now pays 2.31% APY.

Savings bonds also have several tax advantages over CDs:

You can buy savings bonds at TreasuryDirect (www.treasurydirect.gov) and have them issued electronically to your account.

Don't bother looking for paper bonds as the Treasury Department stopped issuing them at the beginning of 2012. The only exception is that you can buy up to $5,000 in paper bonds using your tax refund by filing IRS Form 8888.

retirement highway signLearn the 10 secrets to successfully save for retirement. Building enough wealth to support yourself later in life has become a lifelong task that starts the first day of your first job and doesn't end until your final day of work. But it can be surprisingly easy if you make just a few savvy decisions — and avoid just a few stupid mistakes. Secret No. 1 is "Don't be discouraged …"

At the Treasury website, you can buy up to $10,000 in Series I Bonds and another $10,000 in Series EE Bonds.

Paper Series EE bonds are issued at half of their face value. So you'll pay $500 for a $1,000 bond, but it will not be worth the face value until it matures.

Do be aware that to avoid any early withdrawal penalty, you'll have to hold onto the bonds for five years. Redeem them earlier, and you'll forfeit the three most recent months' worth of interest.

  • Governmentsuxs

    Well they can't sell bonds to China, Russia or Japan and now they want you to buy junk bonds LOL.

  • AmoebaMan

    I am not about to invest in a corporation that has run in the red for its entire existence except for one year. The last time this country was out of debt was uner the Jackson administration in 1835 ($35,000 or about 3/4 of a mill in today's dollars)

    • Scott_D

      It doesn't matter if it's running in the red, what matters is the GDP to debt ratio, which is stable at the moment.

  • William R.

    The least the government can do for the beleaguered savers out there is offer a meager 2% on an I bond. While they have bailed out every irresponsible group in the country, they offer 2% to all of you responsible citizens out there. While Ben Bernanke and his cohorts have literally destroyed the retirement income of countless numbers of seniors who rely on fixed income investments to generate income for their retirement, this is the best the government can offer. They should put in place a retirement fund for seniors to invest in, guaranteeing a 4 or 5% return on their money, to replace the fixed income investments which they counted on being there when they retired. Live irresponsibly in America, and your Government will gladly bail you out, live responsibly in America and you may be able to get a 1% return on your fixed income investments. Thank you Ben Bernanke.

    • energyNOW_Fan

      I agree with that sentiment and I wrote my Congressman to ask for something like that. He was apparently not able to grasp the concept, however.

  • The_Mick

    I've been getting 2% from my credit union CD's for some time, so I was expecting something close to 2% now. My I-Bonds (purchased monthly) before last November are beginning to pay 1.84% for six months, my November to April I-Bonds are beginning to pay 2.04%, and the one I'll get on May 21st will pay 1.94%. It will take five more months to get to the point where I'm still averaging less than 1.94% and most of my bonds are still paying 1.18% to 1.38% now, so I'm still not too impressed.