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Update on Series I Savings Bonds: Next Inflation Component Will Be 3.07%


The Labor Department released the CPI numbers for September, and with this info, we can now calculate the I Bond inflation component that starts on November 1st. I've calculated that the annualized I Bond inflation component for November will be 3.07%. As described by the Treasury, the inflation rate announced in November is the change between the CPI-U figures from the preceding March and September. From the Labor Department's CPI-U table, March 2009 CPI-U was 212.709, and now we know September's CPI-U (215.969). So the annualized rate can be calculated: 2*(215.969-212.709)/212.709. This equals 3.07%.

It's nice to see an end to that -5.56% inflation component. If you're considering I Bonds, I don't see any advantage of buying I Bonds now rather than in November. The only question for November will be the fixed rate. It's possible that the Treasury will lower the fixed rate to 0%. It's currently 0.10%. I was surprised that the Treasury lowered the fixed rate in May to only 0.10% even when the inflation component was -5.56%. With all risk-free investments yielding very little, I don't see much chance that they'll be any more generous.

For more information on I Bonds, refer to my March 2009 post for a summary of the I Bond features, and for the official information, refer to the Treasury Direct website. I have a history of the I Bond fixed and inflation rates here.

Another alternative to I Bonds are TIPS which don't have purchase limits. The downside with TIPS is that you owe taxes each year. With I Bonds you can defer this until you redeem the I Bond. Refer to the Treasury Direct's Guide to TIPS for more details.

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Anonymous   |     |   Comment #1
You don't see an advantage to buying before November, but wouldn't you avoid risk that they drop the fixed rate to 0% by buying now?
Banking Guy
Banking Guy   |     |   Comment #2
0% is not much different than 0.10%... The loss of 0.10% on $10K is only $50 over 5 years. If you buy I Bonds before November, you'll earn 0% for the first six months. If you wait until November, you'll get at least 3.07% for the first six months.

If the fixed rate had been something nice, it would be worth buying now even with six months of 0%. But a 0.10% fixed rate is just too low in my opinion. I'm still hoping the Treasury will get back to making the I Bonds attractive for the small-time savers with some decent fixed rates like we saw before 2001.
Anonymous   |     |   Comment #3
I know this has nothing to do with CD or Ibonds, but another good investment might be municipal bond funds from Vanguard. They offer good high yields and they are tax exempt, some depending on what states you live in. Agree?
Anonymous   |     |   Comment #4
Does this new inflation rate of 3.07 have any implications for Nov. cd rates?
Anonymous   |     |   Comment #5
I doubt it.

The Feds factored in 0% inflation rate for all the Social Security recipients.

Funny how they apply different inflation numbers to suit themselves. Then again, it's not SO funny.
ctgottapee   |     |   Comment #6
the rates actually all represent different things/factors....

the social security increases is based on a consumer price indexe which is mainly tied to energy prices. arguably the retirees may be more dependent on other factors such as healthcare, but it was set many moons ago before titanium hip replacements and **** were common place.
Anonymous   |     |   Comment #7
FEDs are pulling inflation numbers out of a magician hat. They control the money, so what ever politicians in Washington want, they get it.
This is not a real inflation index, it is make believe number and is made to hurt the savers.
Who on earth will buy I bonds with next to 0% base interest rate.
I will bet anyone reading this blog that the I bond interest will always be bellow the real inflation rate, now and for foreseeable future or forever or as long as the Dollar exists.