May 2012 I Bond rate

What will the next I Bond rate be? Now that we have the 6 month change in the CPI-U for September to March, we know what the inflation-linked rate will be in May 2012. We will now know the fixed rate of the new bonds until the May announcement, but we can calculate what the composite rate may be based on different values for the fixed rate.

The CPI-U increased by 1.1% for this semi-annual period. The fixed rate is currently set at 0%, where it has been for the past 3 consecutive periods. If this fixed rate holds, we can see a May I Bond rate of 2.2%.

Theoretical Fixed Rate	Composite Rate
0.00%	2.20%
0.10%	2.30%
0.20%	2.40%
0.30%	2.50%
0.40%	2.60%
0.50%	2.71%
0.60%	2.81%
0.70%	2.91%
0.80%	3.01%
0.90%	3.11%
1.00%	3.21%
1.10%	3.31%
1.20%	3.41%
1.30%	3.51%
1.40%	3.61%

 

It seems likely the fixed rate will continue to stay at 0%, which would result in a 2.2% I Bond for the first 6 months. Since the current composite rate is 3.06% and it seems unlikely the fixed rate will improve, there is little reason to wait until May to purchase I Bonds.

CPI-U Update for May I Bond Rate

The March CPI-U value has been released, meaning we can now calculate the inflation-linked rate of the May I Bond. With a CPI-U increase from 226.889 to 229.392, the semi-annual inflation results in a 1.1% inflation-linked rate for the May I Bond.

 

Sept.	Oct.	Nov.	Dec.	Jan.	Feb.	Mar.
226.889	226.421	226.230	225.672	226.665	227.663	229.392

October and November CPI-U

The CPI-U values for October and November show a slight deflationary period since the last CPI-U value for the November I Bond was released. The CPI-U value for October fell from September’s value of 226.889 to 226.421. The value fell again from October’s value to the November value of 226.230. It is far too early to tell what the value of the May I Bond will be, but with deflation or low inflation, the variable rate is sure to be low again.

 

Sept.	Oct.	Nov.	Dec.	Jan.	Feb.	Mar.
226.889	226.421	226.230

November 2011 - May 2012 I Bond Rate

The rate for a newly purchased I Bond for November 2011 through April 2012 is 3.06%.

This rate includes the CPI-U change from March through September, which increased 1.53%. The newly announced fixed rate is 0.00%. This is the same fixed rate as the previous 6 months. The resulting composite rate for a newly purchased rate is 3.06%.

http://treasurydirect.gov/news/pressroom/pressroom_comeeandi1111.htm

November 2011 I Bond rate

Now that the CPI-U values for March through September have been released, we can determine what the range of possible rates will be for the November I Bond.

The CPI-U increase from 223.467 to 226.889 results in an inflation-linked rate of 1.53%. Buying an I Bond in October (before the rate change) would result in 6 months of the current 4.60% composite rate followed by 6 months of the new composite rate of 3.06%.

The new November composite rate cannot be determined exactly since the fixed rate is not known until November. We can determine the possible range of composite rates based on the inflation-linked rate of 1.53% and calculating for different values of the new fixed rate. If you are debating whether or not to buy now or in November, the current fixed rate of 0% does not lend itself to long-term investing while the 4.60% composite rate is more attractive for shorter-term investing. That said, it doesn’t seem likely the fixed rate will rise above 0% in November, either.

Theoretical Fixed Rate	Composite Rate
0.00%	3.06%
0.10%	3.16%
0.20%	3.26%
0.30%	3.36%
0.40%	3.47%
0.50%	3.57%
0.60%	3.67%
0.70%	3.77%
0.80%	3.87%
0.90%	3.97%
1.00%	4.08%
1.10%	4.18%
1.20%	4.28%
1.30%	4.38%
1.40%	4.48%

Since the current 0% fixed rate still results in a competitive 3.06% composite rate for a new I Bond, I believe the fixed rate will remain at 0% in November. The official release of the new rate will be on Tuesday, November 1, 2011.

September CPI-U Value

The CPI-U value for September rose to 226.889. The September value also completes the semiannual period used in the November rate change. Based on the March to September change in CPI-U, the inflation-linked rate for the next semiannual rate change will be 1.53%.

March	April	May	June	July	Aug.	Sept.
223.467	224.906	225.964	225.722	225.922	226.545	226.889

August CPI-U Increase

The CPI-U value for August increased to 226.545. The August value represents a 1.38% increase since March’s value of 223.467. With one month remaining before the November I Bond inflation-linked rate is known, it seems inflation is under control. With no increase in September and a fixed rate on 0%, an I Bond would offer a 2.76% composite rate. The full range of possible rates will be known in mid-October.

 

March	April	May	June	July	Aug.	Sept.
223.467	224.906	225.964	225.722	225.922	226.545