Savings Bond Interest Plummets

Not too long ago, many financial professionals were taking a second look at lowly Savings Bonds. They offered a relatively generous interest rate along with little risk and an attractive tax-deferred feature. With the interest-rate adjustments recently announced by the U.S. Treasury, however, investors can’t be blamed for looking the other way. The new interest rate on Series EE bonds is 0.70%. The rate on Series I bonds, which is adjusted for inflation, is 0%.

I-Bond rates are a combination of a fixed base rate and an inflation rate. A negative inflation rate of -5.56% over the past year wiped out the I-Bond base rate of 0.10%. The inflation portion of the interest rate will be adjusted again in November. Up until May of 2005, the interest rate on Series EE Bonds was adjusted every May and November to be in line with overall market interest rates. Since then, the rate at the date of issue is fixed until the bond matures in 20 years, so current Savings Bond buyers will be locked into the 0.70% rate until 2029or until they cash the bond. EE Bonds that were bought between May 1997 and April of 2005 continue to earn a market-based interest rate, which is adjusted every six months. That rate will be 1.64% until next November.

The Treasury Department also announced that Series E bonds issued before May of 1979 have matured and are no longer earning interest. Tax experts also note that income taxes on any accrued Savings Bond interest is due at maturity even if you don’t cash the bonds in, which gives you a double incentive to turn those old Savings Bonds in your sock drawer into cash. To find out how much your bonds are worth, go to TreasuryDirect.gov.