Inflation Warriors: It's Time To Buy I Bonds

Mar. 25, 2019 4:58 PM ETTIP, VTIP, SCHP, WIP, WIW, STIP, SPIP, WIA, STPZ, LTPZ, TIPZ, TIPX, TDTF, TDTT, PBTP32 Comments
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Summary

  • The current fixed rate of 0.5% is likely to fall on May 1, possibly to as low as 0.2%.
  • I Bond investors can lock in that 0.5% fixed rate for up to 30 years by investing before April 30.
  • A new inflation-adjusted variable rate is also coming May 1 and may be substantially lower than the current 2.32%.

Series I Savings BondsI failed to follow my own advice this week. I put in an order to buy my full 2019 allotment of U.S. Series I Savings Bonds on March 28. Why? Because the time is right to buy I Bonds.

My usual advice, repeated yearly, is to hold off on purchasing I Bonds until two "limbo periods" each year -- after the new variable rate is locked in, but before it goes into effect. The next limbo period begins April 10, when the BLS will release the March inflation report. At that point, we will know the new inflation-adjusted variable rate that will go into effect for purchases after April 30 and eventually affect all I Bonds.

The I Bond's fixed rate, which is currently 0.50% and the highest in 10 years, will also be reset May 1. My belief is it will go down, possibly substantially, and that means buying before April 30 is the correct decision. I Bond investors should always seek a higher fixed rate, which stays with the investment until it is redeemed or matures in 30 years. The fixed rate is the I Bond's "real yield to maturity" and is equivalent to the real yield of a Treasury Inflation-Protected Security.

Because I believe the fixed rate will be going down May 1, I decided there was no reason to wait any longer. By buying in late March, I can lock in one full month of interest. However, buying anytime in April will also accomplish the same important task: Lock in that 0.50% fixed rate.

What's happening with the variable rate?

I Bonds carry a composite interest rate that combines the inflation-adjusted variable rate (which changes every six months) and the fixed rate (which stays with the I Bond permanently). For purchases before May 1, an I Bond will have a six-month

This article was written by

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I am no longer writing for this site. More details. I will continue to post updates at my site, TipsWatch.com.-----David Enna is a long-time journalist based in Charlotte, N.C. A past recipient of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website. The Tipswatch blog, which launched in April 2011, explores ideas, benefits and cautions about U.S. Series I Bonds and Treasury Inflation-Protected Securities, which David believes are an under-appreciated and under-used investments. David has been investing in TIPS and I Bonds since 1998.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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