The Bureau of the Public Debt issued the May1, 2006 to October 31, 2006 rates for the I-Bond and the result wasn't pretty. While I-Bonds had been paying 6.73% during the previous period (November 1, 2005 to April 30, 2006), the new rates plunged to a measly 2.41%. This includes a fixed rate of 1.4% (up from 1.0%) and a variable rate of 1.0%. Since you can easily find online banks that are paying above 4% (with sign up bonuses to boot), I-Bonds are not looking like a good place to invest these days.
For those who purchased during the last six months, the rate is even worse since the fixed portion was only 1.0% during the November 1, 2005 to April 30, 2006 period. The rate for for the next six months drops to 2.01%. You're also stuck with the lower rate as the I-Bond can't be redeemed for a full year after it has been issued.
While the raising of the base rate to 1.4% is better than the previous 1%, it is a lot less than a lot of people had been hoping for and doesn't really make purchasing the I-Bonds a "hidden opportunity" that some had hoped for. It looks like the best option is to wait until next November to see what changes occur and if you currently have I-Bonds that meet the 1 year holding period with a low fixed rate, you'll want to consider redeeming them. (Note: a 3-month interest penalty applies if you sell the I-Bond before 5 years and Federal tax will be applied for the year you redeem any I-Bonds for the year you redeem I Bonds)
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I-Bond Rate
I-Bond Rates Plunge To 2.41%
