Update 11/3/13: The new rates for November 2013-April 2014 are 0.20% fixed and 1.18% variable. See details here.
Update 10/30/13: September 2013 CPI was finally announced to be 234.149. March 2013 CPI-U was 232.773. New variable rate is 1.18%, you can use this number instead of my prediction of ~1% in the original post below as it is very close. As a CD replacement, it’s probably won’t be that much worse than the top rates but not much better, either. I’ll still be buying some in late November as sadly they are still better than short-term TIPS as a taxable investment.)
Original post 10/16/13:
I was supposed to provide an update on the new Savings Bonds interest rate, but the reporting is delayed due to the government shutdown. Instead, I’ll try to get some rough numbers based on the BLS.gov inflation data that we have so far.
New Inflation Rate
March 2013 CPI-U was 232.773. September 2013 CPI-U is unknown, but the latest August 2013 CPI-U was 233.877. If September’s value ends up the same as August, then that would be a semi-annual increase of 0.47%. Using the official formula, the variable rate component for the next 6 month cycle would be 0.94%. The new fixed rate is nearly guaranteed to be zero, so the total rate will be 0.94% as well. If you have an older savings bond, your fixed rate may be different.
If inflation skyrocketed between August and September, then the actual rate will be higher. I don’t see any indication that it did, but it probably did increase a little bit. Now, it is possible that the BLS will announce the September CPI-U numbers by the end of October. Otherwise, the government may use the a number based on the last 12-month change, which from August 2012 to August 2013 was 1.5%. So my rate estimate would remain likely close to 1%, but up to 1.5%.
Buy in October, November, or not at all?
If you buy an I Bond before the end of October, you will be guaranteed an interest rate of 1.18% for the first 6-month cycle (0% fixed + 1.18% variable) and then a guesstimate 1% (0% fixed + ~1% variable) for the 2nd 6-month cycle. Again, you can wait to see if the hard numbers get announced shortly.
If you wait until November, you’ll get the guesstimate 1% (0% fixed + ~1% variable) for the first 6-month cycle. After, it depends on future inflation. Instead of locking in a low 1% rate for 12 months by buying in October, I’d probably just wait until late November to buy. It’s a gamble, but this way my second 6-month rate chunk has more upside possibility if inflation gets going again.
Or, you could just pass if you’re just looking for a really good short-term CD-like instrument. Even at these current low rates, I’ll probably still buy some as I’m out of tax-deferred IRA/401k space and 5-year TIPS still have a negative real yield. I now consider Savings bonds part of my long-term portfolio. Not really excited about it though.
If you’re confused as I’m skipping over stuff, please check out my previous Savings Bonds posts which go into more detail.