New I-Bond Rate for May 1, 2010: 1.74%

The new I-Bond rate has been released for May 1, 2010 through October 31, 2010.

With a fixed rate of 0.20%, the new composite rate will be 1.74%.

We previously knew that the CPI-U increase of 0.77% would result in a variable rate of 1.54%. Now that the fixed rate of 0.20%, the composite rate is 1.54% + 0.20% = 1.74%.

I-Bonds that have already been issued will change to the new variable rate on the 6-month anniversary of the issue month of the bond.

What will the next i-bond rate be?

With the CPI-U linked rate of .77% set for the May-October I-Bond release, it is now time to speculate what the fixed rate value could be. The fixed rate is set by an unknown method, meaning we won’t know until it is announced May 1.

The current fixed rate is 0.30%, which is the 4th consecutive sub-1% rate. With a weak economy, it would make sense that the next fixed rate will remain low to encourage people to spend rather than save, so my guess is that the next fixed rate will be in the .50%-.70% range. My last guess was for a 1.0% fixed rate, which was a full 0.70% difference from the actual 0.30% rate that was announced.

Theoretical Fixed Rate	Composite Rate
0.00%	1.54
0.10%	1.64
0.20%	1.74
0.30%	1.84
0.40%	1.94
0.50%	2.04
0.60%	2.14
0.70%	2.25
0.80%	2.35
0.90%	2.45
1.00%	2.55
1.10%	2.65
1.20%	2.75
1.30%	2.85
1.40%	2.95

 

With the relatively low rate of inflation over the past 6 months, it is unlikely i-bonds will break the 3.0% mark.

Next Composite Rate for Existing I-Bonds starting May 1, 2010.

Given the new CPI-U linked rate of .77%, we can now determine the composite rate for currently issued I-Bonds. An I-Bond purchased before May 1 will have a fixed rate of 0.30% and will earn the current composite rate of 3.36% until October 1, when it will switch to 1.84%.

 

Fixed Rate	Composite Rate
0.00%	1.54%
0.10%	1.64%
0.30%	1.84%
0.70%	2.25%
1.00%	2.55%
1.10%	2.65%
1.20%	2.75%
1.30%	2.85%
1.40%	2.95%
1.60%	3.15%
2.00%	3.56%
3.00%	4.56%
3.30%	4.87%
3.40%	4.97%
3.60%	5.17%

March CPI-U and the next CPI-U based Rate

The March CPI-U value increased to 217.631 and completes the range used to calculate the next variable rate, which goes into effect on May 1st.

Given the increase from September’s value of 215.969 to March’s value of 217.631, the CPI-U value increased by .76955%, which will be rounded to .77%.

 

Sep.	Oct.	Nov.	Dec.	Jan.	Feb	Mar.
215.969	216.177	216.330	215.949	216.687	216.741	217.631

 

All bonds sold May 1 through October 31 will have a CPI-U linked rate of .77% and an as yet unknown fixed rate. Currently issued I-Bonds will switch to the new rate on the 6-month anniversary of the issue date.

February CPI-U Value

The CPI-U value for February increased slightly to 216.741. The CPI-U value has hovered around 216 for each of the periods so far with only one month left before the next variable rate will be known.

 

Sep.	Oct.	Nov.	Dec.	Jan.	Feb	Mar.
215.969	216.177	216.330	215.949	216.687	216.741

January 2010 CPI-U Value Released

The January 2010 CPI-U value increased to 216.687, up from December's fall to 215.949.

There are 2 months remaining for determining the next variable rate portion of an I bond's composite rate.

CPI-U for the May I Bond rate:

Sep.	Oct.	Nov.	Dec.	Jan.	Feb	Mar.
215.969	216.177	216.330	215.949	216.687

 

I-Bonds and CPI-U values

December CPI-U

The December CPI-U value dropped slightly to 215.949.

 

CPI-U for the May I Bond rate:

Sep.	Oct.	Nov.	Dec.	Jan.	Feb	Mar.
215.969	216.177	216.330	215.949