Inflation Report Sets I Bond's New Variable Rate At 1.40%

Apr. 10, 2019 10:09 AM ETTIP8 Comments
Tipswatch profile picture
Tipswatch
2.61K Followers

Summary

  • Energy prices drove overall inflation up sharply in March, giving a boost to the I Bond's variable rate calculation.
  • I Bonds purchased before May 1 will offer an overall one-year return of 2.4%, but most importantly will carry a permanent fixed rate of 0.5%.
  • My advice continues to be: Buy I Bonds up to your full allocation before the fixed rate is reset on May 1.

U.S. inflation surged a bit in March, the Bureau of Labor Statistics reported today, providing the final piece of data needed to set the new inflation-adjusted variable rate for U.S. Series I Savings Bonds.

The BLS set the March index for non-seasonally adjusted inflation at 254.202, an increase of 0.56% over the February number. The I Bond's new variable rate, which will go into effect May 1, is based on non-seasonally adjusted inflation from September 2018 to March 2019.

Because inflation increased 0.70% (rounded from 0.698%) over that period, the I Bond's new variable rate will be set at 1.40%, boosted by two recent months of relatively strong inflation. But that is still lower than the current annualized rate of 2.32%, available for I Bond purchases through April 30.

The inflation-adjusted variable rate lasts six months, and is combined with an I Bond's permanent fixed rate (currently 0.50%) to create an I Bond's composite rate.

Here are the numbers used in the variable-rate calculation:

Inflation and I Bonds(Source: TipsWatch.com)

I Bonds purchased before May 1 will receive the current fixed rate of 0.50%, along with a variable rate of 2.32% for six months, and then 1.40% for six months. Overall, that will provide an average return of about 2.4% over one year.

I am recommending buying I Bonds up to the full allocation ($10,000 per person per year) before May 1, to capture that 0.50% fixed rate, which is highly likely to fall when it is reset on May 1. The fixed rate is permanent, lasting until the I Bond is redeemed or matures in 30 years.

I'll be writing more about the fixed rate and overall I Bond prospects in an article later this week.

Inflation jumped in March

The Consumer Price Index for All Urban Consumers increased 0.4% in March on a

This article was written by

Tipswatch profile picture
2.61K Followers
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.

Recommended For You

Comments (8)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.