• Blog Post by: Kara McGuire
• May 2, 2011 - 5:02 PM

Have you been complaining about the next -to-nothing interest rate that your cash stash is earning in the bank? 

Well, good news from the Treasury Department. Any Series-I Savings Bonds purchased between now and Halloween will earn a  4.60 percent annualized rate for the six months after purchase. That's a significant increase from the 0.74 percent these bonds were earning before the rate reset.

The earnings for I-bonds, designed to protect against inflation (I=inflation), are made up of two rates - the fixed rate, which applies for the life of the bond and currently earns 0 percent, and the semi-annual inflation rate, which is based on the Consumer Price Index, an inflation measure.

 I don't know about you, but that 4.6 percent is a lot higher than what I'm getting in my "high-yield" online savings account, which currently pays 1 percent.

Say you keep your bond for a year, which is the minimum holding time. Accounting for the penalty of 3 months' interest, Simon Zhen at Mybanktracker.com calculates that the worst case secnario is 2.3 percent, a return that "would nearly double that of the leading 12-month CD," Zhen writes. 

The drawback is that there's no telling whether the rate will go up or down when it resets again on Nov. 1, meaning your money could be locked up for five years for a rate far lower than 4.6 percent in the future.

If you take the money out before the five years is up, you'll be charged a penalty of three months interes. But that's a penalty I'd gladly pay, given how much better this return is than any savings account or short-term CD on the market.

You can buy $5,000 in I-bonds through treasurydirect.gov in $25 increments and $5,000 worth of paper bonds per year in $50 increments.

Sell the family silverware and invest in I-bonds, perhaps?

The Treasury Department also announced new savings bond rates for the Series EE bonds. If you bought an EE bond today, it would earn 1.10%.

However, rates vary depending on when you purchased them and when they mature so your best bet is to use the Savings Bond calculator