Savings I Bonds November 2016 Update: 2.76% Inflation Rate

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Update for I bonds issued from November 1, 2016, through April 30, 2017. The new fixed rate as of November 1st, 2016 is 0.0%, which was a decrease from 0.1% during the last 6-month period. For comparison, 5-year TIPS real yield on 11/1/16 was actually negative at -0.29%. The variable inflation-indexed rate is 2.76% (as was predicted). Your total rate is the sum of your fixed rate and the variable rate. See you again in mid-April 2017 for the next early prediction.

Original post 10/18/16:

Savings I Bonds are a low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. You could own them as a short-term investment in place of bank CDs or savings accounts, or you could hold them as long-term investments in place of government, corporate, or municipal bonds.

New inflation numbers were just announced at, which allows us to make an early prediction of November 2016 savings bond rates a couple of weeks before the official announcement on May 1st. This also allows us the opportunity to know exactly what a October 2016 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New Inflation Rate
March 2016 CPI-U was 238.132. September 2016 CPI-U was 241.428, for a semi-annual increase of 1.38%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be approximately 2.76%. 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 very different than one from recent years.

Purchase and Redemption Timing Reminder
You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “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 as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time though, since if you wait too long your effective purchase date may be bumped into the next month.

Buying in October 2016
If you buy before the end of October, the fixed rate portion of I-Bonds will be 0.1%. You will be guaranteed the current variable interest rate of 0.16% for the next 6 months, for a total 0.10 + 0.16 = 0.26%. For the 6 months after that, the total rate will be 0.10 + 2.76 = 2.86%. 0.26% for 6 months, then 2.86% for 6 months.

Let’s say we hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on October 31st, 2016 and sell on October 1, 2017, you’ll earn a ~0.92% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you held for three month longer, you’d be looking at a ~1.34% annualized return for a 14-month holding period. Compare with the current highest 1-year bank CD rates of roughly 1.25% and online savings accounts rates of roughly 1%.

Buying in November 2016
If you wait until November, you will get 2.76% plus an unknown fixed rate for the first 6 months. The fixed rate is likely to be either zero or 0.1%. (Update: The fixed rate is 0.0%, making the total rate 2.76% for the first 6 months.) Every six months, your rate will adjust to the fixed rate plus a variable rate based on inflation. If inflation picks up, you’ll get a hiked rate earlier than versus buying in October.

If you buy on November 30th, 2016 and sell on November 1st, 2017, you’ll earn a minimum ~1.51% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. As long as inflation isn’t zero or negative over the next 6 months, you’ll earn even more. Your rate is guaranteed to beat out any current 1-year CD rate, and you still have upside potential.

Which is better? If you really want to lock in that 0.1% fixed rate for the long-term, you could buy in October. I think you have more short-term upside if you buy in November, even if your fixed rate might drop to zero. I already bought my 2016 annual limit back in April, and I intend to hold these indefinitely for the reasons listed below.

Existing I-Bonds and Unique Features
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 + variable rate (minimum floor of 0%). Due to their annual purchase limits, you should still consider their unique advantages before redeeming them. These include ongoing tax deferral, exemption from state income taxes, and being a hedge against inflation (and even a bit of a hedge against deflation).

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. Buy online at, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund (see IRS Form 8888). If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

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  1. Thank you Jonathon! I’ve been investing in I bonds for several years. I’ve been checking in with your rate predictions for awhile now, and they’ve always been spot on, helping me to determine the best times to buy. As far as I can tell, there aren’t many other websites providing this information, so thanks for taking the time to do it!

  2. Chad Anderson says

    Thanks for doing the work on future estimates on I bond rates – appreciated!

  3. Thanks for posting this info.! I’ve been holding some 3% ones since 2001 and they’ve kept me from going belly up as we’ve seen one financial crisis after the next occur! What else is paying 5.8% right now that has literally little to no risk? Answer: NOTHING! I-bond have saved my poorfolio! 🙂

  4. Jonathan,

    How much of your total funds are you tying to i bonds, 30%? So, you have to hold them for 12 months? You have to keep some funds in a bank as an emergency buffer? how much penalty if you withdraw in 3 or 6 mo?

    • You do need to exercise caution using them as emergency funds given that you can’t access them at all for 12 months. If you keep buying a little every year though, more of your ladder will be liquid over time. I used to think of them as emergency funds until I realized I didn’t want to sell them. They offer tax-deferred growth and real yields better than 5-year TIPS, and I might use them for college tuition.

      I personally treat my I Bond holdings as part of my long-term bond holdings, in place of TIPS. I have no immediate plans to withdraw, if real yields go up a lot then I will reconsider. I have 1 year of expenses in other liquid savings and CDs with reasonable early withdrawal penalties.

  5. Is there a fund or etf that minics this security, but more flexible?

  6. If the penalty for redeeming I Bonds during the first five years is the most recent three months of interest, why do I never earn interest on the first three months of buying the I bonds?

    If I buy the November I bonds at the end of the month at 2.76% and redeem immediately after the first 11 months and the second six month period is variable rate of zero, wouldn’t the minimum interest earned be even less than 1.51%?

    Again, the first three months, I earn nothing instead of 2.76%. And the last five months I may earn nothing because the variable rate may drops to zero again.

    • The interest penalty is the 3 most recent months of interest *as of the current date*. It keep trailing. Therefore, in the first three months, you earn 2.76% but that is taken away by the penalty. Starting in month 4, you’ll start seeing the 2.76% from month 1 come back, but then the interest for month 2 through month 4 will be missing due to the penalty.

  7. Hi Jonathan! I just purchased I bonds for the first time this month to diversify my portfolio and plan on holding long term. since the variable rate is so high, do you think I should purchase my limit in January or wait until May in hopes the fixed rate will be higher?

  8. which is better I-bond or andrew’s cd at 3% , for

    1)short-term like 1 year cash equivalent/fund
    2) longer term like roth ira (I haven’t decided whether to risk it with investing, a part of it, or just keep it with these options andrew’s/i bond)?

  9. I bought ibonds while working in March and August of 2011. They are now earning 0.16%. So in March and August I will start receiving 2.76%?

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