Time to Redeem Older Savings I Bonds With Zero or Low Fixed Rates?

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After the November 2023 fixed rate was announced to be higher at 1.3%, I’ve gotten a few questions about redeeming “old” Savings I Bonds with lower fixed rates (some at 0%) and buying these “new” ones instead. During this current 6-month period, a lot of them are also earning less than a 4% interest rate when you add the ~3.38% inflation rate. Here are some considerations in making that decision:

When was the fixed rate very low? The fixed rates on your Savings I Bonds were set based on the month of purchase (issue). You can find a list of fixed rates based on issue date here and here. With a few exceptions, look for fixed rates between 0% and 0.30% which occurred with issue dates between May 2008 and October 2018, and again between November 2019 and October 2022.

Find the issue date of your specific savings bonds at TreasuryDirect.gov or on the face of your paper bond.

3-month interest penalty for savings bonds held less than 5 years. So you’ve found the ones with very low fixed rates. But also remember, if you redeem before 5 years, you lose the final 3 months of interest completely. Your actual interest rate changes every 6 months, and so you can time which 3 months of interest you lose. You may want any period of high inflation to “run out” before you redeem.

Here are redemption dates if you want to time it such that the 3 months interest rate penalty you lose is the only first 3 months of the lower 3.38% inflation rate (which first started in May 2023). Some of the dates have passed, and the window is already open. I first saw this reported by TIPSWatch.

  • Issue month: November/May 👉 Redeem after August 1st, 2023
  • Issue month: December/June 👉 Redeem after September 1st, 2023
  • Issue month: January/July 👉 Redeem after October 1st, 2023
  • Issue month: February/August 👉 Redeem after November 1st, 2023
  • Issue month: March/September 👉 Redeem after December 1st, 2023
  • Issue month: April/October 👉 Redeem after January 1st, 2024

Annual purchase limits. Savings I Bonds have purchase limits of $10,000 per year per SSN (plus another $5,000 via tax return and other ownership title “loopholes”). So if you sell your past existing holdings, you can’t necessarily turn around and buy double or triple your usual amount this year at the higher fixed rate. If aren’t coming close to exceeding the purchase limits, then this is not a concern, and selling savings bonds at 0% fixed rate and buying at 1.3% fixed rate may be a simple and smart move.

Alternatively, you may wish to sell your 0% fixed rate bonds and purchase individual TIPS of a specific maturity instead due to the current higher real yields. I Bonds and TIPS have both similarities and important differences, one of which is that you can never lose money (nominally) with a savings bond, but your long-term TIPS may drop by 10% or more in the short-term.

Tax deferral. Savings bonds have a unique feature that you can defer paying any taxes until you redeem them (or until they mature after 30 years). If you redeem your savings bonds now, you will have to pay any taxes on all of the accumulated interest this tax year. The tax deferral and thus tax-free compounding can increase your overall return if you don’t have other tax-deferred space available. In addition, if your marginal tax rate is very high right now, but you expect it to be much lower in the near future (perhaps in retirement), then you may wish to wait a bit.

My overall take? As you can see, there are lots of little details and exceptions, but… If you’re using savings bonds as a short-term cash reserve or otherwise have another good place for the money, then it’s probably best to sell your 0% fixed rate bonds and re-invest in alternatives.

However, if you’ve been building up a big pile for long-term inflation protection combined with flexibility with taxes and withdrawals, and you are just buying up to the limits every year already, and don’t have other pressing needs for that money, then I don’t feel you’ll be hurt horribly by holding.

Personally, I’ll probably be selling most if not all of my 0% fixed rate bonds over time, with sensitivity to my overall tax brackets. I plan to reinvest into long-term TIPS at 2%+ fixed real rates as tax-deferred space is available.

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Savings I Bonds November 2023: 1.30% Fixed Rate, 5.27% Total Composite Rate

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Savings I Bonds bought from November 1, 2023 through April 30, 2024 will have a fixed rate of 1.30%, for a total composite rate of 5.27% for the first 6 months. The semi-annual inflation rate is 1.97% as predicted (3.94% annually), but the full composite rate is dependent on the fixed rate for each specific savings bond and so it is a little bit higher. This total composite rate is a bit lower than current short-term Treasury yields, and the fixed rate is about 1% lower than that of current short-term TIPS yields. Press release.

Every existing I Bond will earn this inflation rate of ~3.96% eventually for 6 months; you will need to add your own fixed rate that was set based the initial purchase month. See you again in mid-April for the next early prediction for May 2024.

Original post from 10/13/23:

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. With a holding period from 12 months to 30 years, you could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the November 2023 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a October 2023 savings bond purchase will yield over the next 12 months, instead of just 6 months. You can then compare this against a November 2023 purchase.

New inflation rate prediction. March 2023 CPI-U was 301.836. September 2023 CPI-U was 307.789, for a semi-annual inflation rate of 1.97%. Using the official composite rate formula:

Composite rate formula: [Fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]

This results in the variable component of interest rate for the next 6 month cycle being ~3.94% to 3.96% if you use a fixed rate of between 0% and 1%.

Tips on purchase and redemption. You can’t redeem until after 12 months of ownership, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A simple “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month – same as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in October 2023. If you buy before the end of October, the fixed rate portion of I-Bonds will be 0.90%. You will be guaranteed a total interest rate of 0.90 + 3.40 = 4.30% for the next 6 months. For the 6 months after that, the total rate will be 0.90 + 3.96 = 4.86%.

Comparing with the best interest rates of October 2023, these rates lower than what is available via regular nominal Treasury bonds and other deposit accounts.

Buying in November 2023. If you buy in November 2023, you will get ~3.96% plus a newly-set fixed rate for the first 6 months. The new fixed rate is officially unknown, but is loosely linked to the real yield of short-term TIPS. My rough guess is somewhere between 1% and 1.5%. The current real yield on short-term TIPS is higher than it was during the last reset, when the fixed rate was set at 0.9%. Every six months after your purchase, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your specific purchase month. Your bond rate = your specific fixed rate (based on purchase month, look it up here) + variable rate (total bond rate has a minimum floor of 0%).

Buy now or wait? Between those two options, I would buy in November as you’ll likely get a slightly higher fixed rate and a higher initial inflation rate. If you’ve already bought for 2023, you’ll eventually get the newer inflation rate after six months. However, right now you might prefer to buy TIPS instead (especially if you have tax-deferred space available) as they will likely have a higher real yield.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and potential tax benefits if used toward qualified educational expenses.

Over the years, I have accumulated a nice pile of I-Bonds and consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. You can only buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number. TheFinanceBuff has a nice post on gifting options if you are a couple and want to frontload your purchases now. TreasuryDirect also allows trust accounts to purchase savings bonds.

Concerns about TreasuryDirect customer service. Opening a TreasuryDirect account or conducting other transactions can sometimes be a hassle as they may ask for a medallion signature guarantee which requires a visit to a physical bank or credit union and snail mail. This doesn’t apply to everyone and seems to have gotten better recently, but plan to experience some delays in any transaction that you try to accomplish (registration changes, converting paper bonds, changing bank accounts). They just seem to be overwhelmed in general.

Bottom line. Savings I bonds are a unique, low-risk investment that are linked to inflation and only available to individual investors. You can only purchase them online at TreasuryDirect.gov, with the exception of paper bonds via tax refund. For more background, see the rest of my posts on savings bonds.

[Image: 1942 US Savings Bond poster – source]

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Criminals Are Cashing in Fake Savings I Bonds With Authentic Serial Numbers

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Many of us have bought Series I Savings Bonds in the past, and it appears criminals have also been taking notice. From the CNBC article California woman pleads guilty in $1.6 million counterfeit Series I savings bond scheme:

A California woman pled guilty to helping process more than $1.6 million in counterfeit Treasury Department Series I savings bonds through financial institutions around the United States, the Department of Justice said Thursday.

Summer Marie Creech, 45, forged counterfeit I bonds using authentic bond numbers and sent them to co-conspirators who used stolen identification to redeem the forgeries at financial institutions in south Texas and elsewhere, according to the DOJ.

A concerning detail here is that the articles states she used authentic bond serial numbers. Where did she get them? Are they issued in some sort of predictable order or algorithm? Did they find some banks that just paid out cash?

How do I know that someone else hasn’t already redeemed a counterfeit savings bonds with MY serial number(s) on it? I can only look up the value based on issue date at TreasuryDirect.gov Paper Savings Bond Calculator (you can enter any serial number you like). There is no way to confirm if my specific serial number has already been cashed in (by me or by someone else). This may be another reason for me to convert the paper savings bonds into the electronic version and track it online. I’ve been turned off by the very long wait times recently along the possibility of it being lost in the mail, but I may have to bite the bullet.

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Savings I Bonds May 2023 Inflation Rate: 0.90% Fixed, 4.30% Total Composite Rates

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May 2023 fixed rate will be 0.90%, total composite rate is 4.30% for next 6 months. For Savings I bonds bought from May 1, 2023 through October 31, 2023, the fixed rate will be 0.90% and the total composite rate will be 4.30%. The semi-annual inflation rate is 1.69% as predicted (3.38% annually), but the full composite rate is dependent on the fixed rate for each specific savings bond and so it is a little bit higher.

Every single I bond will earn this inflation rate of ~3.40% eventually for 6 months, depending on the initial purchase month. The fixed rate was higher than I predicted, although still a bit lower than short-term TIPS yields. You may wish to wait until October if you don’t like what you see right now. See you again in mid-October for the next early prediction for November 2022.

Original post from 4/12/23:

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. With a holding period from 12 months to 30 years, you could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the May 2023 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a April 2023 savings bond purchase will yield over the next 12 months, instead of just 6 months. You can then compare this against a May 2023 purchase.

New inflation rate prediction. September 2022 CPI-U was 296.808. March 2023 CPI-U was 301.836, for a semi-annual increase of 1.69%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be ~3.38%. You add the fixed and variable rates to get the total interest rate. The fixed rate hasn’t been above 0.50% in over a decade, but if you have an older savings bond, your fixed rate may be up to 3.60%.

Tips on purchase and redemption. You can’t redeem until after 12 months of ownership, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A simple “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month – same as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in April 2023. If you buy before the end of April, the fixed rate portion of I-Bonds will be 0.40%. You will be guaranteed a total interest rate of 0.40 + 6.49 = 6.89% for the next 6 months. For the 6 months after that, the total rate will be 0.40 + 3.39 = 3.79%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on April 30th, 2023 and sell on April 1st, 2024, I estimate that you’ll earn a ~4.48% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you theoretically buy on April 30th, 2023 and sell on July 1, 2024, you’ll earn a ~5.07% annualized return for an 14-month holding period. Comparing with the best interest rates as of April 2023, these short-term rates are roughly on par on what is available via regular nominal Treasury bonds and other deposit accounts.

Buying in May 2023. If you buy in May 2023, you will get 3.38% plus a newly-set fixed rate for the first 6 months. The new fixed rate is officially unknown, but is loosely linked to the real yield of short-term TIPS. My rough guess is somewhere between 0.2% and 0.5%. The current real yield on short-term TIPS is lower than it was during the last reset, when the fixed rate was set at 0.4%. Every six months after your purchase, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (based on purchase month, look it up here) + variable rate (total bond rate has a minimum floor of 0%). So if your fixed rate was 1%, you’ll be earning a 1.00 + 3.38 = 4.38% rate for six months.

Buy now or wait? If you buy in April, you will get the remnants of the last period of higher inflation, and a fixed rate that won’t change much for May. If you wait until May, there may be a small possibility that the fixed rate might go up, but even if it does, it will take a while for that to breakeven due to the lower initial inflation rate. Therefore, my opinion is that I would purchase now in April. Note that the real yields on TIPS are currently about 1.2% for a 5-year term, higher than the fixed rate for I bonds.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. You can only buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number. TheFinanceBuff has a nice post on gifting options if you are a couple and want to frontload your purchases now. TreasuryDirect also allows trust accounts to purchase savings bonds.

Note: Opening a TreasuryDirect account can sometimes be a hassle as they may ask for a medallion signature guarantee which requires a visit to a physical bank or credit union and snail mail. This doesn’t apply to everyone and seems to have gotten better recently, but the takeaway is don’t wait until the last minute.

Bottom line. Savings I bonds are a unique, low-risk investment that are linked to inflation and only available to individual investors. You can only purchase them online at TreasuryDirect.gov, with the exception of paper bonds via tax refund. For more background, see the rest of my posts on savings bonds.

[Image: 1950 Savings Bond poster from US Treasury – source]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

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Alternative Ways To Track Savings I Bond Values (Tools and Calculators)

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If you have accumulated some savings bonds but don’t really enjoy logging into TreasuryDirect.gov all the time, here are some alternative methods to tracking your balances over time. Each has its own strengths and weaknesses, and the unofficial ones are the results of motivated DIY investors. As an example, I will track a Savings I Bond purchased in April 2013 for $10,000.

Official TreasuryDirect Savings Bond Calculator

Although this official calculator states that it is only meant for paper savings bonds, you can still use it indirectly to track electronic savings bonds (they have the same value as long as they are issued the same month). For example, let’s say you bought $10,000 of I Bonds issued in April 2013. While you can’t enter a $10,000 value directly, you can enter two $5,000 I Bonds. (Enter anything for serial number.) Thus, you’d see that as of April 2023, they are worth $12,636.

You can even save your entire inventory of specific I bonds if you follow the directions here. It feels a bit archaic (you’re basically saving a plain text .html file), but it works. You can even import the values into Google Sheets, according to this Bogleheads forum post.

EyeBonds.info

Created by a user on the Bogleheads forums, this is a very handy and simple website that tracks the price of every savings bonds based on the issue date. For April 2013, simply click on that date and see the growth in value shown below. As of April 2023, you get the same $12,636 value and since the rate is known for the next 6 months as well, you can see the value all the way out to October 2023. This may lead to the easiest way to import the values into your own custom Google Sheet; check out Bogleheads forum post.

eWorkpaper I Bond Calculator

This site also allows you to look up the price history of savings bonds based on the issue date. For April 2013, there are the same ending values along with a chart comparing the value against CPI inflation. You can also quickly create a list of multiple savings bonds here, although it doesn’t appear to allow you to save it for later.

(I personally use these tools once in a while for research, but for tracking balances I simply log into TreasuryDirect.gov during my quarterly portfolio updates and manually enter the values into my Google Sheets page under the “Inflation-Protection Bonds” asset class. It’s only four times a year, and I like to log into the official retro website to make sure my money is still there.)

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William Bernstein on Holding Both Treasury Bonds and TIPS (or Savings I Bonds)

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sb_posterWilliam Bernstein has a new article titled Riskless at Age 104 in which he outlines why he just bought some 30-year Treasury Inflation-Protected Securities (TIPS) that won’t mature until he is 104 years old. Despite that distracting headline, the article is more about the reasons why you might want to hold both traditional US Treasury bonds that pay a stated rate and TIPS that pay a stated rate above inflation.

Here’s a quote that is nearly the answer to a riddle: What is risky in the short run but riskless in the long run? What is the opposite?

A TIPS is risky in the short term and riskless in the long run, which is precisely the opposite of, and complementary to, a T-bill, which is riskless in the short term but, because of reinvestment rate volatility, risky in the long run.

In the end, Dr. Bernstein recommends holding both:

To summarize, TIPS and T-bills are complementary assets. The former appeals to our System 2’s inner Spock, who first and foremost wants to secure our future consumption, while the latter assuages our System 1’s inner Daffy Duck, who wants us to bail at the worst possible time and violate Charlie Munger’s first rule of compounding, which is to never interrupt it.

The prudent retiree holds a goodly pile of both.

I also split the bond portion of my portfolio between safe traditional bonds (and cash and CDs) and safe inflation-protected bonds. My take:

  • Cash, which can be held in the form of short-term Treasury Bills or cash deposits in an FDIC-insured bank account, satisfies our System 1 “reptile brain”. It’s simple, reliable, and easy to understand. It may not keep up with inflation perfectly, but it also moves around a lot less.
  • TIPS and I Savings Bonds, which allow you to remove the variable of unexpectedly high inflation over long period of time (up to 30 years out), satisfies our System 2 “rational brain”. As a long-time holder, I can attest that it fluctuates in unpredictable ways and is not that much fun to hold. It’s actually like stocks in that price seem to drop in times of crisis. You have to really understand the inner workings, but if you do then it becomes a form of long-term insurance against unexpectedly high inflation.

This is also why I’m still buying Savings I Bonds every year even though the headline rates are not as crazy anymore. I don’t buy them as a substitute for short-term cash, but as a form of long-term insurance policy. When inflation spiked up to 8%+, it wasn’t just $10k of I Savings Bonds that I bought in 2022 that went up 8%+. My entire stash of I Savings Bonds slowly accumulated over a decade or more went up 8%+. I will admit, it felt nice that something went up in 2022. Savings I Bonds also never go down in value (unlike TIPS), so in a way they are the least stressful way to hold inflation-protected bonds.

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Paper Savings Bonds: Pay w/ Credit Card by 1/17, Use Tax Refund To Increase Purchase Limit by $5,000

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As inflation spiked, so did interest in purchasing inflation-linked Series I Savings bonds. Some folks have been going to extra lengths to increase their ability to purchase them, buying savings bonds for kids, trusts, LLCs, corporations, and so on. One of the more direct ways to increase your annual purchase limits is to use IRS Form 8888 when filing your taxes this year, which allows you to use your tax refund to purchase up to $5,000 in paper Savings Bonds each year. This is on top of the $10,000 annual limit on electronic savings bonds per person at TreasuryDirect.

Of course, that means you need to have a refund when you file your taxes. You’ll need to estimate your tax liability, and if needed, you can make an overpayment on your federal tax withholding to ensure you have the refund size you want. The deadline for 2022 4th Quarter estimated tax payments is Tuesday, January 17th, 2023.

You can make a direct payment via credit or debit card via various official processors. The processing fee starts at just 1.85%, which means that as long as you have 2% cash back rewards card or better, you can actually come out slightly ahead. Even better, paying $4,000 in taxes would satisfy most of the spending hurdles on big credit card bonuses worth well over $500. Two birds, one stone.

You can also make a direct payment via your bank account at EFTPS.gov or IRS DirectPay.

Right now is the best window, as it minimizes the time between paying the taxes and receiving your paper savings bonds. Filing your taxes earlier will also shorten that window. If you wish, you can later convert those paper savings bonds to electronic form at TreasuryDirect.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

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Savings I Bonds November 2022 Interest Rate: 6.48% Inflation Rate, 0.40% Fixed Rate

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November 2022 rates officially announced. May 2022 rate confirmed at 9.62%. 11/1/2022 press release. The variable inflation-indexed rate for I bonds bought from November 2022 through April 2023 will indeed be 6.48% as predicted. Every single I bond will also earn this rate eventually for 6 months, depending on the initial purchase month. The fixed rate for I bonds bought from November 2022 through April 2023 will be 0.40% (up from zero, and right in the midpoint of my guess), for a composite rate of 6.89% for 6 months. Still a good deal, either buying now or in January when the purchase limits reset.

See you again in mid-April for the next early prediction for May 2023.

Original post 10/13/22:

Inflation still 🚀 😬 Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. With a holding period from 12 months to 30 years, you could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the November 2022 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a October 2022 savings bond purchase will yield over the next 12 months, instead of just 6 months. You can then compare this against a November 2022 purchase.

New inflation rate prediction. March 2022 CPI-U was 287.504. September 2022 CPI-U was 296.808, for a semi-annual increase of 3.24%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 6.48%. You add the fixed and variable rates to get the total interest rate. The fixed rate hasn’t been above 0.50% in over a decade, but if you have an older savings bond, your fixed rate may be up to 3.60%.

Tips on purchase and redemption. You can’t redeem until after 12 months of ownership, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A simple “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month – same as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in October 2022. If you buy before the end of October, the fixed rate portion of I-Bonds will be 0%. You will be guaranteed a total interest rate of 0.00 + 9.62 = 9.62% for the next 6 months. For the 6 months after that, the total rate will be 0.00 + 6.48 = 6.48% for the subsequent 6 months.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on October 31st, 2022 and sell on October 1st, 2023, you’ll earn a ~7.01% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you theoretically buy on October 31st, 2022 and sell on January 1, 2024, you’ll earn a ~6.90% annualized return for an 14-month holding period. Comparing with the best interest rates as of October 2022, you can see that this is much higher than a current top savings account rate or 12-month CD.

Buying in November 2022. If you buy in November 2022, you will get 6.48% plus a newly-set fixed rate for the first 6 months. The new fixed rate is officially unknown, but is loosely linked to the real yield of short-term TIPS. My guess is somewhere between 0.1% and 0.6%, but who knows. If I Every six months after your purchase, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (based on purchase month, look it up here) + variable rate (total bond rate has a minimum floor of 0%). So if your fixed rate was 1%, you’ll be earning a 1.00 + 6.48= 7.48% rate for six months.

Buy now or wait? Given that the current I bond rate is already much higher than the equivalent alternatives, I would personally buy in October to lock in the high rate for the longest possible time. I would grab the “bird in the hand”, even though you might get a slightly higher fixed rate in November. I already purchased up to the limits first thing in January 2022, and I’ll probably buy again in January 2023. However, I am also buying TIPS as the real yield right now is higher than that of I bonds.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and consider it part of the inflation-linked bond allocation inside my long-term investment portfolio. Right now, the inflation protection “insurance” is paying off with high yields and no principal risk.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. You can only buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number. TheFinanceBuff has a nice post on gifting options if you are a couple and want to frontload your purchases now. TreasuryDirect also allows trust accounts to purchase savings bonds.

Note: Opening a TreasuryDirect account can sometimes be a hassle as they may ask for a medallion signature guarantee which requires a visit to a physical bank or credit union and snail mail. This doesn’t apply to everyone, but the takeaway is don’t wait until the last minute.

Bottom line. Savings I bonds are a unique, low-risk investment that are linked to inflation and only available to individual investors. You can only purchase them online at TreasuryDirect.gov, with the exception of paper bonds via tax refund. For more background, see the rest of my posts on savings bonds.

[Image: 1950 Savings Bond poster from US Treasury – source]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings I Bonds May 2022 Inflation Update: 9.62% Interest Rate!

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

May 2022 rate confirmed at 9.62%. Official press release. The variable inflation-indexed rate for I bonds bought from May 1, 2022 through October 31, 2022 will indeed be 9.62% as predicted. Every single I bond will earn this rate eventually for 6 months, depending on the initial purchase month. The fixed rate (real yield) is also 0% as predicted. Still a good deal.

See you again in mid-October for the next early prediction for November 2022.

Original post 4/12/22:

Inflation (and thus I Bonds) 🚀🚀🚀! Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. With a holding period from 12 months to 30 years, you could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the May 2022 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a April 2022 savings bond purchase will yield over the next 12 months, instead of just 6 months. You can then compare this against a May 2022 purchase.

New inflation rate prediction. September 2021 CPI-U was 274.310. March 2022 CPI-U was 287.504, for a semi-annual increase of 4.81%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 9.62%. You add the fixed and variable rates to get the total interest rate. The fixed rate hasn’t been above 0.50% in over a decade, but if you have an older savings bond, your fixed rate may be up to 3.60%.

Tips on purchase and redemption. You can’t redeem until after 12 months of ownership, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A simple “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month – same as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in April 2022. If you buy before the end of April, the fixed rate portion of I-Bonds will be 0%. You will be guaranteed a total interest rate of 0.00 + 7.12 = 7.12% for the next 6 months. For the 6 months after that, the total rate will be 0.00 + 9.62 = 9.62%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on April 30th, 2022 and sell on April 1st, 2023, you’ll earn a ~6.51% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you theoretically buy on April 30th, 2022 and sell on July 1, 2023, you’ll earn a ~7.17% annualized return for an 14-month holding period. Comparing with the best interest rates as of April 2022, you can see that this is much higher than a current top savings account rate or 12-month CD.

Buying in May 2022. If you buy in May 2022, you will get 9.62% plus a newly-set fixed rate for the first 6 months. The new fixed rate is officially unknown, but is loosely linked to the real yield of short-term TIPS, and is thus very, very, VERY likely to be 0%. Every six months after your purchase, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (based on purchase month, look it up here) + variable rate (total bond rate has a minimum floor of 0%). So if your fixed rate was 1%, you’ll be earning a 1.00 + 9.62 = 10.62% rate for six months.

Buy now or wait? Given that the current I bond rate is already much higher than the equivalent alternatives, I would personally buy in April to lock in the high rate for the longest possible time. Who knows what will happen on the next reset? I already purchased up to the limits first thing in January 2022. You are also getting a much better “deal” than with TIPS, as the fixed rate is currently negative with short-term TIPS.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and consider it part of the inflation-linked bond allocation inside my long-term investment portfolio. Right now, the inflation protection “insurance” is paying off with high yields and no principal risk.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. You can only buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number. TreasuryDirect also allows trust accounts to purchase savings bonds.

Note: Opening a TreasuryDirect account can sometimes be a hassle as they may ask for a medallion signature guarantee which requires a visit to a physical bank or credit union and snail mail. Don’t expect to be able to open an account in 5 minutes on your phone.

Bottom line. Savings I bonds are a unique, low-risk investment that are linked to inflation and only available to individual investors. Right now, they promise to pay out a higher fixed rate above inflation than TIPS. You can only purchase them online at TreasuryDirect.gov, with the exception of paper bonds via tax refund. For more background, see the rest of my posts on savings bonds.

[Image: 1950 Savings Bond poster from US Treasury – source]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings I Bonds November 2021 Interest Rate: 7.12% Inflation Rate

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

November 2021 rate confirmed at 7.12%. The variable inflation-indexed rate for I bonds bought from November 1, 2021 through April 30th, 2022 will indeed be 7.12% as predicted. Every single I bond will earn this rate eventually for 6 months, depending on the initial purchase month.

The fixed rate (real yield) is also 0% as predicted, but realize that the real yield on a 5-year TIPS right now is about negative 1.7%. There is significant demand for inflation protection right now. See you again in mid-April for the next early prediction for May 2022. Don’t forget that the purchase limits are based on calendar year, if you still wish to max out for 2021.

Original post 10/13/2021:

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. With a holding period from 12 months to 30 years, you could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the November 2021 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a October 2021 savings bond purchase will yield over the next 12 months, instead of just 6 months. You can then compare this against a November 2021 purchase.

New inflation rate prediction. March 2021 CPI-U was 264.877. September 2021 CPI-U was 274.310, for a semi-annual increase of 3.56%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 7.12%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be up to 3.60%.

Tips on purchase and redemption. You can’t redeem until after 12 months of ownership, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A simple “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month – same as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in October 2021. If you buy before the end of October, the fixed rate portion of I-Bonds will be 0%. You will be guaranteed a total interest rate of 0.00 + 3.54 = 3.54% for the next 6 months. For the 6 months after that, the total rate will be 0.00 + 7.12 = 7.12%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on October 31st, 2021 and sell on October 1st, 2022, you’ll earn a ~3.87% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you theoretically buy on October 31st, 2021 and sell on January 1, 2023, you’ll earn a ~4.57% annualized return for an 14-month holding period. Comparing with the best interest rates as of October 2021, you can see that this is much higher than a current top savings account rate or 12-month CD.

Buying in November 2021. If you buy in November 2021, you will get 7.12% plus a newly-set fixed rate for the first 6 months. The new fixed rate is officially unknown, but is loosely linked to the real yield of short-term TIPS, and is thus very, very, very likely to be 0%. Every six months after your purchase, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (total bond rate has a minimum floor of 0%). So if your fixed rate was 1%, you’ll be earning a 1.00 + 7.12 = 8.12% rate for six months.

Buy now or wait? Given that the current I bond rate is already much higher than the equivalent alternatives, I would personally buy in October to lock in the high rate for the longest possible time. Who knows what will happen on the next reset? Either way, it seems worthwhile to use up the purchase limit for 2021 either in October or November. You are also getting a much better “deal” than with TIPS, as the fixed rate is currently negative with short-term TIPS.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. You can only buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

Note: Opening a TreasuryDirect account can sometimes be a hassle as they may ask for a medallion signature guarantee which requires a visit to a physical bank or credit union and snail mail. Don’t expect to be able to open an account in 5 minutes on your phone.

Bottom line. Savings I bonds are a unique, low-risk investment that are linked to inflation and only available to individual investors. Right now, they promise to pay out a higher fixed rate above inflation than TIPS. You can only purchase them online at TreasuryDirect.gov, with the exception of paper bonds via tax refund. For more background, see the rest of my posts on savings bonds.

[Image: 1950 Savings Bond poster from US Treasury – source]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Reader Question: Should I Buy Savings Bonds in September/October 2021 or November 2021?

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

sb_poster

Here’s a timely reader question about Series I Bonds. It’s a good question because I predict that Series I Bonds will be soon getting even more media attention soon due to an even higher inflation-linked rate.

Would it be best to wait till November 1st to purchase I bonds? You mentioned the fixed rate will probably confine at 0. but what about the semiannual inflation rate? Do u think it is likely to be more than 3.54%? I’m new to this please educate me.

Series I Bond rates react every 6 months to delayed inflation reports from the Bureau of Labor Statistics. August CPI-U was already reported in mid-September, and September CPI-U will be reported in mid-October. 5 out of 6 months of data are already in the books, leaving only one month of data left. The 12-month trailing inflation rate as of that August CPI-U update was over 5%. Therefore, unless that data contains a significant amount of deflation, we already know that the next inflation rate on Series I Bonds is going to be higher than the 3.54% from May to October 2021. I roughly estimate the range that the next inflation rate will be between as 5% to 7%. That should be enough accuracy to make a purchase timing decision, earlier than my usual practice of waiting until mid-October.

  • If you buy in September or October 2021, you will receive a total rate of 3.54% for the first six months, then the “new” (estimated 5%-7%) rate for the next 6 months, and then new rates adjusted every six months for inflation onward.
  • If you buy in November 2021, you will receive the “new” (estimated 5%-7%) rate for the first 6 months, and then new rates adjusted every six months for inflation onward.

The takeaway is that either way, you will earn the “new” rate (estimated 5%-7%) eventually. If you buy in September/October, you’ll just have to wait a bit due to the staggered structure. Given that the current rate of 3.54% is still a higher interest rate than nearly any other savings account or CD is paying, I would personally just invest now if I had the cash ready and waiting. Also remember that Series I Bonds do not allow early withdrawals within the first 12 months after purchase date. As long as you complete your purchase by the end of September, it will count as purchased in September 2021 and you will be able to withdraw as of September 1st, 2022 (though subject to a penalty if held less than 5 years). It may take a little bit to set up your TreasuryDirect account, and it may take a couple business days for the withdrawal and purchase to process, so I wouldn’t wait until the last day.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. You can only buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

As noted in my previous savings bond posts, these Series I bonds are a unique investment opportunity in that they are only available to individuals and are subject to purchase limits. Even if the real yield (fixed rate) is set at zero, that is still significantly higher than that of TIPS that trade on the open market (well negative across the board!). If institutional investors like pension funds or endowments could buy I bonds like you and me, they would buying billions of them.

I plan to purchase up to my annual purchase limit for 2021 as part of my asset allocation to inflation-linked bonds, although you can start with as little as $25. I guarantee that there will be many more articles about Series I bonds in mainstream personal finance sites in November after the new rate is officially announced.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings I Bonds May 2021 Interest Rate: 3.54% Inflation Rate

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

May 2021 predictions confirmed. The fixed rate will indeed be 0% for I bonds issued from May 1, 2021 through October 31st, 2021. The variable inflation-indexed rate for this 6-month period will be 3.54% (also as predicted). See you again in mid-October for the next early prediction for November 2021. Don’t forget that the purchase limits are based on calendar year, if you wish to max for 2021. (I’m going to max out by the end of May.)

Original post:

sb_poster

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. With a holding period from 12 months to 30 years, you could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the May 2021 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a April 2021 savings bond purchase will yield over the next 12 months, instead of just 6 months. You can then compare this against a May 2021 purchase.

New inflation rate prediction. September 2020 CPI-U was 260.280. March 2021 CPI-U was 264.877, for a semi-annual increase of 1.77%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 3.54%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be up to 3.60%.

Tips on purchase and redemption. You can’t redeem until after 12 months of ownership, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A simple “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month – same as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in April 2021. If you buy before the end of April, the fixed rate portion of I-Bonds will be 0%. You will be guaranteed a total interest rate of 0.00 + 1.68 = 1.68% for the next 6 months. For the 6 months after that, the total rate will be 0.00 + 3.54 = 3.54%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on April 30th, 2021 and sell on April 1, 2022, you’ll earn a ~1.88% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you theoretically buy on April 30th, 2021 and sell on July 1, 2022, you’ll earn a ~2.24% annualized return for an 15-month holding period. Comparing with the best interest rates as of April 2021, you can see that this is higher than a current top savings account rate or 12-month CD.

Buying in May 2021. If you buy in May 2021, you will get 3.54% plus a newly-set fixed rate for the first 6 months. The new fixed rate is officially unknown, but is loosely linked to the real yield of short-term TIPS, and is thus very, very, very likely to be 0%. Every six months after your purchase, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (total bond rate has a minimum floor of 0%).

Buy now or wait? The question is, would you rather get 1.68% for six months and then 3.54% for six months guaranteed, or get 3.54% for six months plus an unknown value? If you think the next inflation adjust will be greater than 1.68%, then you may choose to buy in May. Either way, it seems worthwhile to use up the purchase limit for 2021 as the total rates will at least be higher than other cash equivalents. You are also getting a much better “deal” than with TIPS, the fixed rate is currently negative with short-term TIPS.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and now consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. You can only buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

Bottom line. Savings I bonds are a unique, low-risk investment that are linked to inflation and only available to individual investors. Right now, they promise to pay out a higher fixed rate above inflation than TIPS. You can only purchase them online at TreasuryDirect.gov, with the exception of paper bonds via tax refund. For more background, see the rest of my posts on savings bonds.

[Image: 1946 Savings Bond poster from US Treasury – source]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.