New I Bond Earnings Rate Falls to 3.06%
The Treasury Department, via the Bureau of the Public Debt, announced the latest earnings rate for Series I Savings Bonds which will be issued from November 2011 through April 2012. The newest I Bond rate is 3.06%, down from 4.60%, a decrease of 1.54% from the previous earning rate.
I Bonds are made up of two components: a fixed rate and a variable rate. The fixed rate component applies during the entire life of the I Bond. The variable rate component is the semiannual inflation rate calculated from Consumer Price Index for all Urban Consumers (CPI-U). This new I Bond rate includes a fixed rate component of 0.00% and a variable rate component of 1.53%.
While I Bonds earn more interest than the typical short term CD or high-yield savings account, it's important for investors to remember that they aren't as liquid as these two other options. Investors must wait a full year before they can redeem an I Bond. If an investor redeems an I Bond within the first five years of purchase, they must forfeit the three most recent months of interest as a penalty.
The earning rates for I Bonds are set every May 1 and November 1 meaning that the next earning rates update will be May 1, 2012. I Bonds come in valuations of $50, $75, $100, $200, $500, $1000, $5000 and $10,000. The interest on I Bonds accrues monthly and compounds semiannually and they have a 30 year interest-bearing life. I Bonds which are held for less than five years are subject to a three-month interest penalty.