February CPI-U update

The CPI-U value for February increased again to 212.193. This is still well below September's value of 218, so it is virtually impossible to have a positive value for the variable portion of I bonds for the next cycle.

Sept.	Oct.	Nov.	Dec.	Jan.	Feb.	Mar.
218.783	216.573	212.425	210.228	211.143	212.193

 

At this point, it is almost certain all I bonds will see a rate of 0% for the 6-month cycle starting on May 1. The deflation aspect of the formula is simply too large a negative value to produce a positive return. Since the composite rate cannot be negative, the rate will be 0%. As previously purchased bonds hit their 6-month anniversary, the rate will drop to zero. In order for a new I bond to offer a non-zero rate, the fixed rate would have to be over 6%, which is not very likely.

The highest fixed rate ever was 3.60%, so maybe we can see an adjustment to something close to that again. Even with a 0% rate for 6 months, a high fixed-rate I bond would be a good investment if held for a long period of time. The bonds with the 3.60% fixed rate were earning 9.4% in November 2005!

 

I Bond CPI-U Values

January CPI-U Value

The CPI-U rate for January 2009 increased to 211.143. The increase over December's 210.228 marks the first period of inflation instead of deflation for this cycle, but it is still far below September's 218.783, which is when the next inflation-linked rate will be derived from.

Sept.	Oct.	Nov.	Dec.	Jan.	Feb.	Mar.
218.783	216.573	212.425	210.228	211.143

Even if we experience significant inflation in the next month, it is unlikely the CPI-U rate will reach 218 again. This means that the inflation-linked portion of the next I bond will still most likely be negative and is likely to result in a 0% period for most, if not all, I bonds.

The CPI-U would have to reach 215 before the highest fixed rate I bonds issued (3.6% fixed) would earn a non-zero return.

I bonds and CPI-U

December CPI-I Rate

The CPI-U value for December dropped again to 210.228. The two point fall is the 5th consecutive month of deflation measured by the CPI-U.

What does this mean for I Bonds in May? Even if the fixed rate of your current bonds are not enough to offset the negative rate we are likely to see from deflation, the final rate on an I bond will never go below zero. If the current deflation continues, there are no fixed rates previously issued that would offset the deflation rate. It is very possible we will see a 0% rate for May-November.

Even if there is a 0% rate, you are still better off than keeping money under the mattress. Money invested in I Bonds is keeping its value while money under the mattress is losing value.

November CPI-U Rate Released

November's CPI-U rate declined again to 212.425 from October's 216.573. This marks the fourth consecutive decline from July's high of 219.964.

It is still too early to guess what the next I Bond rate may be based on the data so far, but if continued decreases in the CPI-U value continue, the inflation portion of the bond could be zero.

October CPI-U Value Released

The CPI-U value for October decreased from 218.783 in September to 216.573. This deflation wipes away the high inflation over the summer and returns the value back to levels seen in May.

This is the first month to be used in the inflation-linked rate for May 2009, so it is way too early to guess the next rate.

New IBond Rate 5.64%

With an increase in the fixed rate to .70%, the new I-bond rate for November to April 09 will be 5.64%.

The CPI-U increase was 2.46%, as we knew, but the increase in the fixed rate was a pleasant surprise.

Fixed Rate: 0.70%
CPI-U Rate: 2.46%
IBond Rate: 5.64%


http://www.ibonds.info/rates.html

September CPI-U released, new rate guess

The CPI-U measurement dropped for the second month in a row, ending at 218.783 - down from 219.086 in August.

We now know the CPI-U change from March to September, meaning the new inflation-linked portion of November's I Bond rate is ready. With an increase in CPI-U of 2.46%, we can expect to see November's I bond rate be 4.92%. This rate assumes a 0% fixed rate for the bond, which is what the fixed rate is currently. With the economic downturn we are experiencing, the 4.92% is attractive enough without raising the fixed rate, so it is unlikely we will see movement.

If you purchase a bond now, you will receive the 4.84% rate for 6 months, then the rate will adjust to the expected 4.92% in April.

 I Bond rate for November 2008