The biggest difference is the change in Fixed Rate from 1.0 to 1.2%. If anyone owns IBonds with FR 1% or less, it's good time to think about selling them and buying new IBonds with higher FR. Pay attention to Capital Gains when you make such a move.

There are no capital gains on I-Bonds - they are redeemed at par (these are the inflation indexed savings bonds).

I have I-bonds that I have purchased regularly since 2002. Are those bonds now earning 4.8% for the next 6 months?

Hi - take a look here -

I think existing I-Bonds will yield about .2%less than new ones - Composite rate = [Fixed rate + 2 x Semiannual inflation rate + (Semiannual inflation rate X Fixed rate)]

(still a pretty good rate)

http://www.publicdebt.treas.gov/sav/sbirate2.htm

congrats on prediction. I really grew frustrated with totally unsubstantiated idiotic predictions about the i-bond rates.

the 5 year tip is probably right.

Thanks for the link fg.

My next question is:

Why would I want to sell my old I-bonds and buy the newer ones simply to gain 0.2% return? Wouldn't it be better to keep deferring the income tax until I actually need or want to spend the money?

Good point. Remember that that there is a 3 month interest penalty on bonds that are redeemed before they are 5 yr old.

If there is a substantial amount accrued interest someone might actually make more by keeping the old bonds rather than paying the tax and reinvesting a lower principle ammount (and triggering the 1 yr mandatory hold again). Bonds that are more than one year old are nice to have since they can be liquidated quickly if needed.

-fg

I just double checked w/ Treasury Direct - my understanding now is that rates on existing bonds will change every six months from when those bonds are issued. So the rate on existing bonds may not adjust right away. Sorry if I caused confusion on this.

-fg

Newbie here. I need a point of claification. Is the interest on I bonds simple or compound? If I buy and retain an I bond for 5 years is the return for year 6 based on principle only or principle plus accrued interest?
thanks,
Dave

Hi - I belived the interst accrues monthly and is compounded semi-anually. This is from the Treasury Direct Website:
https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_i_faq.htm

"When are earnings added to the I Bond?
I Bonds increase in value on the first day of each month, and interest is compounded semiannually based on each I Bond's issue date. An I Bond's issue date is the month and year in which an I Bond issuing agent receives the full issue price."

These are a good deal for the small investor. There is a 1 year mandatory lockup. They are great if you live in CA or NY or another hi tax state since they are exempt from state income tax.

-fg