Inflation Report Sets I Bond's New Variable Rate At 1.06%

Apr. 10, 2020 3:52 PM ETTIP20 Comments
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Summary

  • U.S. Series I Savings Bonds purchased before May 1 will pay a composite interest rate of 2.22% for six months, and then 1.26% for six months.
  • I Bonds remain the world's best inflation-protected investment, especially if you purchase them before May 1.
  • Gasoline prices sent the U.S. economy into deflation in March. Deflation looks like a trend that will continue for many months.

The March inflation report, just released by the U.S. Bureau of Labor Statistics, locks in the I Bond's new inflation-adjusted variable rate at 1.06%, down from the current 2.02%.

The new inflation-adjusted rate will go into effect May 1, when the U.S. Treasury will also reset the I Bond's fixed rate, which is currently 0.2%. That fixed rate is highly likely to drop to 0.0% on May 1.

What does this all mean? It means if you haven't bought I Bonds up to the Treasury's purchase cap -- $10,000 per person per calendar year -- you should do that before May 1 to lock in the 0.2% fixed rate for the life of the bond, plus the 2.02% variable rate for a full six months.

Some I Bond basics:

  • A Series I Savings Bond is a Treasury security that earns interest based on combining a fixed rate and an inflation rate.
  • The fixed rate will never change. So if you buy an I Bond today with a fixed rate of 0.2%, it will continue to have a 0.2% fixed rate for the life of the bond.
  • The inflation-adjusted rate (also called the variable rate) changes each six months to reflect the running rate of non-seasonally adjusted inflation. That rate is currently set at 2.02% annualized. It will adjust again on May 1 for all I Bonds to 1.06%. (The effective start date of the new variable rate depends on the month you bought the I Bond, a Treasury oddity.)
  • The combination of the fixed rate and inflation-adjusted rate creates the I Bond's composite interest rate, which is currently 2.22%. An I Bond bought today will earn 2.22% (annualized) for six months and then get a new composite rate every six months for its 30-year term. For I Bonds purchased after May 1, the new composite

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.

Additional disclosure: David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. The investments he recommends can purchased through the Treasury or other providers without fees, commissions or carrying charges.

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