It’s time again to predict the upcoming I-Bond rate announcement for November, as the September CPI-U numbers were just announced. We did this successfully for both last October and April, using the information in my How To Predict I-Bond Savings Bond Rates post.
202.9/199.8 = 1.0155155, or a semi-annual increase of 1.5516%.
Fixed rate = Unknown, currently 1.4%. I predict about 1.2-1.6%.
Total rate = Fixed rate + 2 x Semiannual inflation rate + (Semiannual inflation rate X Fixed rate)
If we assume a fixed rate of 1.4%, we get
Total rate = 0.014 + (2 x .0155155) + (.014 x .0155155)
Total rate = 1.4% + 3.12%
Total rate = 4.52%
For those with existing I-Bonds, the variable rate is about 3.1% to add on to your fixed rate. Note that the rate on your bonds changes every six months from the date you bought it, so it might not change immediately in May.
Let’s look at our buying options:
Buying in October
You lock in the current fixed rate of 1.4%, and also the current (pitifully low) variable rate of 1.01%. for a total of 2.41% for the first six months. For the next six months after that, you will get ~3.12% for the variable rate, for a total of 4.52%. Not very impressive.
Treating an I-Bond as a potential 11-month CD
Definitely not a good idea, as even if you maximize your return and do the buy-late trick and hold it for 11 months for 9 months of interest, your return will be far under current market rates for a 1-year bank CD. This is even taking into account the possible state tax exemption advantage of certain states.
Buying in November
If you wait until the fixed rate is actually announced on November 1st and it is really high, which could make I-Bonds a possibly good long-term investment. Probably still not a very good short-term one.
I need to do another analysis of what to do with my current savings bond holdings next.