As of May 1st, the Treasury announced that I-Bonds bought from now until 10/05 will earn 4.8%. The fixed component is up from 1.0% to 1.2%, and the inflation-indexed component rises to 3.6%. (For more on how I-bonds work, please see this previous post). For me, my older I-bonds, with a fixed part of 1.1%, pay 4.7% now. Not too shabby, especially since you’re not paying state income tax on the interest.
Also announced was that new EE-bonds will pay a fixed rate of 3.5%, which is not very exciting at all. As I mentioned before, it’s like getting a slightly tax-advantaged 30yr CD at 3.5% with no early-termination penalties after 5 years. Both EE- and I-bonds also have perks when used for education.
It’s nice to see the fixed part of I-bonds go up, it may be a good time to buy some… I will need to do a bit more math to see if it’s worth it to put some short-term money into I-bonds right now. Specifically, I need to estimate the effects of the 3-month early cash-in penalty and the state tax exemption. And make some guesses about inflation – Now where’s my crystal ball…
By Jonathan Ping | Savings Bonds | 5/2/05, 9:56am