Next I Bond inflation component 3.06%

Thursday, October 15th, 2009
Categorized as: Yesterday's News (old post archive)

The next I bond inflation component will be 3.06%, up from the current -5.56%. The component is based on the difference between the Consumer Price Index in March (212.709) and September (215.969). The September CPI was released this morning.

To determine what your own I bonds will earn during their next six-month rate period, see the following table.

 

New Series I Savings Bond composite rates

Issue Date Fixed Rate Composite Rate
Sep 98 – Oct 98 3.40% 6.51%
Nov 98 – Apr 99 3.30% 6.41%
May 99 – Oct 99 3.30% 6.41%
Nov 99 – Apr 00 3.40% 6.51%
May 00 – Oct 00 3.60% 6.72%
Nov 00 – Apr 01 3.40% 6.51%
May 01 – Oct 01 3.00% 6.11%
Nov 01 – Apr 02 2.00% 5.09%
May 02 – Oct 02 2.00% 5.09%
Nov 02 – Apr 03 1.60% 4.68%
May 03 – Oct 03 1.10% 4.18%
Nov 03 – Apr 04 1.10% 4.18%
May 04 – Oct 04 1.00% 4.08%
Nov 04 – Apr 05 1.00% 4.08%
May 05 – Oct 05 1.20% 4.28%
Nov 05 – Apr 06 1.00% 4.08%
May 06 – Oct 06 1.40% 4.48%
Nov 06 – Apr 07 1.40% 4.48%
May 07 – Oct 07 1.30% 4.38%
Nov 07 – Apr 08 1.20% 4.28%
May 08 – Oct 08 0.00% 3.06%
Nov 08 – Apr 09 0.70% 3.77%
May 09 – Oct 09 0.10% 3.16%

Moreover, keep in mind that the new interest rate for your I bonds will not necessarily begin on November 1. Instead, new rate periods begin every six months starting with the month in which your I bond was issued. So, for example, an I bond issued in July begins new rate periods in July and January.

Because the Treasury doesn’t have public criteria for setting the fixed base-rate for new I bonds, it’s impossible to predict what the next I bond fixed-base rate will be. Yesterday, the 10-year TIPS rate was 1.51%. The last time 10-year TIPS rates were at this level, the fixed rate for new I bonds was set at 0.0%. It’s possible that the Treasury will make the fixed rate a bit more attractive because these are the first I bonds that will be available for purchase with tax refunds.

Given that the current fixed base rate is 0.1%, it’s probably better to wait until after November 1 to buy new I bonds. I bonds you purchase today will earn nothing for six months, followed by six months of 3.17%. If you wait until November 1 to invest, you’ll get 3.07%, or perhaps a bit more if the fixed rate is set above zero, for six months, followed by six months of an inflation rate yet to be determined.

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FDIC Insured Certificates of Deposit can pay 1 or 2% more than savings bonds when held for a similar length of time. See top CD Rates Below:

10 Comments

On October 15th, 2009 Jeff From Great Neck said:

Lets assume the worst:
– A 0.0% fixed rate beginning 11/1/09
– A 3.07% inflation rate beginning 11/1/09
– A 0.0% inflation rate for the following 6
months.

My annualized return on this investment would be
at least 1.535 over 11 months tax deferred until I cash the bonds in and never any state or local taxes to pay on the interest. I can buy these bonds 11/30/09 and begin earning interest 11/1/09. Similar risk free investments such as a one year CD pays about 1.5% while a 1 yr treasury bond pays less than 1%. Seems like a no brainer that I bonds are the way to go – risk free!

On October 16th, 2009 Nik said:

Is there any way to determine what the effective date of next year’s tax refund I-bonds will be?

It seems to me, depending on when one submits one’s income taxes to the IRS, that early filers might receive I-bonds with a November 2009-April 2010 composite rate OR (if filing at the last minute) a May 2010-October 2010 composite rate.

On October 17th, 2009 Ed said:

Thanks Tom, … the Composite Rate Table is Great.
Of course we should all wait till November to mess with our I-bonds, but this new CPI-U looks good. This might be the window to redeem low fixed rate 1% or 0% I-Bonds for new ones. Looking forward to the official Fed’s November 2nd (Monday) posting.

On October 19th, 2009 Tom Adams said:

Jeff – Nice analysis.

Nik – There’s no official word on this, but it’s an interesting question. A case could be made for the bonds to be issued in the month in which you file your return. However, it typically takes the IRS a few weeks to process the return and issue the refund. The Treasury typically issues Savings Bonds in the month it gets the money. Of course, by “Treasury” I mean the Bureau of Public Debt. But the IRS is also a subunit of the Treasury, so it will be interesting to see whether returns mailed by April 15 get April or May bonds – which, of course, will have different rates.

Tom Adams

On October 29th, 2009 Scot in Kentucky said:

Just found this website. I really like the information I am seeing. Thanks for having this! You have a new visitor!

On October 31st, 2009 Ken Shiels said:

My I bonds with an issue date of 02/2003 have earned no interest since August 2009 and, in spite of the new interest rate posted in November, will earn no interest until February 2010. Is this correct?

On November 2nd, 2009 Tom Adams said:

This article originally said the inflation component would be 3.07%. Today the Treasury’s official announcement set it at 3.06% and I’ve adjusted the headline, article, and table accordingly. The Treasury rounds the six-month CPI change to two digits before annualizing it (multiplying by 2) and I failed to do that.

Tom Adams

On November 2nd, 2009 Tom Adams said:

Ken – Yes, that is correct. Then in Feb 2010 that bond will start earning 4.68%. For the whole year (Aug 09 to July 10) that averages to 2.34%, which isn’t bad for those of us who aren’t too big to fail.

Tom Adams

On November 13th, 2009 Frank said:

I’m new to this. I guess I don’t understand what you mean when you write this is “what your own I bonds will earn during their next six-month rate period”. According to Savingsbonds.gov, most of my of my I-bonds are now earning 0%. I’ve been purchasing them over the past 10 years. Can you clarify?

On November 16th, 2009 Tom Adams said:

Frank – Read my page on how I bond interest rates work, especially the section called Understanding Rate Periods.

Tom Adams

Comments Closed

June 1, 2010

After six years, over 400 posts, 3,680 real comments, and over 90,000 spam comments (thank you, Akismet, for making managing a blog with comments possible), I am closing public comments on Savings-Bond-Advisor.com. I will contine to update the main articles on this site, but not the comments.

Virtually every question about Savings Bonds has been asked and answered on this site multiple times. Use the search feature (see the box in the gray area near the top of this page) or the detailed menu on the lower part of the home page to find the information you're looking for. If you have a copy of Savings Bond Advisor, you can ask me a question here.

Tom Adams

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