Oct. 24 update: September inflation report sets I Bond variable rate at 3.12%
By David Enna, Tipswatch.com
It was inevitable that the trend of lower 5-year real yields would eventually push my I Bond fixed rate protection to 0.90%, down from the current 1.10% for I Bond purchases through this month.
The inevitable became fact on Friday, when the Treasury’s estimate of the 5-year real yield closed at 1.30%.
As I noted in an October 5 posting, the Treasury has no announced formula for setting the I Bond’s fixed rate, which is permanent for the potential 30-year life of the savings bond. However, I Bond watchers have settled on a forecasting tool that seems to work: Apply a ratio of 0.65 to the average 5-year TIPS real yield over the preceding six months. This formula has worked without fail at least since 2017.
As of Friday’s close, here is the updated forecast:
Friday’s close marked the first day the 0.65 ratio formula has resulted in a rounded fixed rate of 0.90% versus 1.00% earlier in October. The new fixed rate will take effect on November 1 and apply to I Bonds sold between November 2025 and April 2026.
Obviously, the ratio result of 0.9499% is a razor-thin margin (0.95100% would round up to 1.00%) but the trend is clear: The fixed rate is going to be 0.90% at the November reset, if the Treasury continues practices it has used over the last decade. To get back to 1.00%, the average over the next 12 market days would have to be 1.47% or higher, which doesn’t seem likely.
Is there a strategy?
Fill the purchase cap this month. If you are a committed I Bond investor and haven’t yet purchased up to the full $10,000 per person limit this year, I recommend that you do that this month at TreasuryDirect. In its BuyDirect system, you can schedule the purchase for later this month. I recommend setting the date for Oct. 28 or 29, to give some time to complete the process before the rate reset. An I Bond purchased late in a month earns a full month of interest.
Use the gift box to add to your purchases. I am not a “fan” of the gift-box loophole for purchasing I Bonds above the limit, but it is legit and can be used if you have a trusted partner for swapping purchases. I did that last year for two two extra sets at a fixed rate of 1.30%, and had no plans to do it again. However … I am doing it again this month.
For more on the gift-box process, read Harry Sit’s excellent summary, updated in 2023.
My plan is to purchase the I Bond gift-box sets in late October and deliver them in November, before the end of the calendar year. (Gift-box deliveries count against the purchase cap, but only if the recipient has not yet purchased that year. Delivering in 2025 leaves the option open for a traditional purchase in 2026.)
Why use the gift box now? Because it looks likely that the changes are coming to the gift-box program, as I noted in an article last week: “TreasuryDirect email is an omen of coming changes.” I don’t know what’s coming, or when. But something is up.
The logical choice is to buy I Bonds at 1.10% instead of 0.90%. If you were going to make the purchase in January anyway, it makes sense to move it up to this month, if you can swing it financially.
Clarity coming on variable rate
The government shutdown was threatening to send the inflation-reporting process into chaos, but that situation was eased last week when the Trump administration allowed Bureau of Labor Statistics staffers to return to prepare the September inflation report. That report is crucial mainly because it will determine the 2026 Social Security cost-of-living adjustment, which by law must be set by November 1. It also will set a new variable rate for all I Bonds, no matter when they were issued.
We will get the September inflation report at 8:30 a.m. Friday, Oct. 24, just a few days before the Federal Reserve will meet Oct. 28-29 to decide if it will reduce short-term interest rates. The inflation report will set the I Bond’s new variable rate. On the morning of Friday, Oct. 31, we should learn the new fixed and composite rates for I Bonds purchased from November to April.
I haven’t yet seen projections for the September rate of non-seasonally adjusted inflation, but I would expect it to be in a range of 0.20% to 0.40%. Combine that with a fixed rate of 0.90% and you get these results:
- 0.2% = variable rate of 3.02%, composite rate of 3.93%
- 0.3% = variable rate of 3.22% composite rate of 4.13%
- 0.4% = variable rate of 3.42%, composite rate of 4.34%
If the result falls into this range, the new composite rate should be close to or higher than the current rate of 3.98%, even with the fall in the fixed rate to 0.90%. Purchases in October will receive the 3.98% composite rate for a full 6 months, and then transition to the next variable rate, combined with the current fixed rate of 1.10%.
Here are the potential future composite rates for I Bonds purchased in October with the higher fixed rate of 1.10%:
- 0.2% = variable rate of 3.02%, composite rate of 4.14%
- 0.3% = variable rate of 3.22% composite rate of 4.34%
- 0.4% = variable rate of 3.42%, composite rate of 4.54%
Keep in mind that the actual rate of non-seasonally adjusted inflation will be something like 0.25% or 0.34%, so a lot of variations are possible. These numbers are a rough guide.
At this point, the I Bond’s composite rate is competitive with the 13-week T-bill at 4.02%, and will gradually be even more appealing as the Fed cuts short term interest rates into next year. I remind, as always, that the three-month interest penalty for redemptions within five years reduces the I Bond’s advantage as a short-term investment. So think longer term.
I Bonds with a fixed rate of 0.90% will remain an attractive way to store inflation-protected cash for future uses.
• Confused by I Bonds? Read my Q&A on I Bonds
• Let’s ‘try’ to clarify how an I Bond’s interest is calculated
• Inflation and I Bonds: Track the variable rate changes
• I Bonds: Here’s a simple way to track current value
• I Bond Manifesto: How this investment can work as an emergency fund
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Treasury Inflation-Protected Securities 
David wrote:
Gift-box deliveries count against the purchase cap, but only if the investor has not yet purchased that year.
Sorry if this seems obvious, but “the investor” is referring to the gift recipient, right?
Does the gift recipient who has not yet purchased yet that year need to purchase at least a particular amount? For example, the $10,000 maximum? Or could the gift recipient just purchase even a small amount for himself (i.e., non-gifts) that year for the received gift-box deliveries to not count against the recipient’s annual purchase cap? Reading posts it sounds like it could be any amount, but just want to make sure.
And it sounds like the purchases would be need to be for himself, and that just purchasing gifts for someone would not prevent gift-box deliveries to him from not counting against his purchase cap.
Thank you.
Robert, I hope this answers your questions.
If a person’s TD account reaches the maximum amount of $10k for the year, that person can no longer buy any I-Bonds for themselves. They can buy as many Gift I-Bonds as they want, and deliver them after the 5-day waiting period.
If they deliver the Gift I-Bonds to a recipient that has not purchased any I-Bonds for themselves yet and that delivery puts the recipients account over the $10k, the recipient cannot buy any I-Bonds for themselves. But they can buy Gift I-Bonds for someone else and deliver them.
It’s okay if the recipient has already bought some I-Bonds for themselves, the delivery of any Gift I-Bond to them will add to that amount and if it doesn’t go over the $10k maximum, they can still buy some more for themselves until the $10k limit is met. The delivery can make their account go over the $10k limit, that’s okay.
Once the $10k limit is met it only prevents them from buying more I-Bonds for themselves. It does not stop them from buying Gift I-Bonds for someone else.
If you have accumulated any Gift bonds in your account, you are encouraged by TD to deliver them to the recipient as soon as possible per the letter they sent out.
The recipient can either buy some I-Bonds before they receive any Gift I-Bonds via delivery or after they receive them, the key is once they reach the $10k limit in their account, they cannot buy for themselves.
The gift box recipient doesn’t need to make any purchase. The delivery only affects the recipient’s ability to buy more I Bonds that year the traditional way.
How do you suggest registering gift bond purchases for your spousal gifts? I prefer co-ownership as opposed to transfer on death, just because that is how my existing bonds are registered.
However, the site would not let me be second owner when I tagged the registration as Gift.
Can I register it in her name with me as transfer on death beneficiary, then once delivered, she can go in and change it from transfer on death to co-ownership? I know in the paper bond world the ability to change registrations had limits and could be a taxable event.
Rocky, Yes, once the bond is delivered to her, as the owner she can change the registration any time to co-owner with you.
Does anyone know where I can find an official answer to the question: When is an I-bond gift considered “delivered” for annual gift tax exclusion purposes? Upon purchase using the gift box OR the year in which it is delivered? Has the IRS or Treasury opined?
This is the article you want to read:
https://thefinancebuff.com/buy-i-bonds-as-gift.html#htoc-gift-tax-form-709
Thanks but that’s not helpful. “It’s not clear to me whether the I Bonds you buy this year as a gift but hold for delivery in a future year count as a “present interest” gift or a “future interest” gift.” Does anyone know where I can find an official ruling on this question?
The answer was in the article. Here’s the excerpt:
Buying I Bonds as a gift counts as a completed gift in the year of the purchase (not the year of the delivery). There’s no limit on how much you can give as gifts to your spouse (unless the spouse isn’t a United States citizen). Each person has an annual gift tax exclusion amount for “present interest” gifts to each non-spouse recipient, which is 16,000 in 2022 and $17,000 in 2023. If the total “present interest” gifts (in I Bonds and other forms) during the year from one specific giver to one specific non-spouse recipient go above this annual gift tax exclusion amount, you’re required to file a gift tax return on IRS Form 709.
here’s the rest of the quotes excerpt, which got cut off:
The gift tax annual exclusion amount for gifts to a non-spouse recipient is $0 for “future interest” gifts. You’re always required to file a gift tax return when you give “future interest” gifts to anyone except your spouse. It’s not clear to me whether the I Bonds you buy this year as a gift but hold for delivery in a future year count as a “present interest” gift or a “future interest” gift. To avoid ambiguity in determining whether it’s a “present interest” gift or a “future interest” gift, only give gifts to your spouse or deliver all gifts to non-spouse recipients within the same calendar year.
Unless you’re also giving the same non-spouse recipient gifts in other ways, buying and delivering $10,000 worth of I Bonds as a gift in the same calendar year falls below the annual gift tax exclusion amount, which doesn’t trigger the requirement to file the gift tax return.
Not helpful. First it’s one person’s opinion and then they offer conflicting information. Why would they write the following if they knew the answer to the question:
“The gift tax annual exclusion amount for gifts to a non-spouse recipient is $0 for “future interest” gifts. You’re always required to file a gift tax return when you give “future interest” gifts to anyone except your spouse. It’s not clear to me whether the I Bonds you buy this year as a gift but hold for delivery in a future year count as a “present interest” gift or a “future interest” gift. To avoid ambiguity in determining whether it’s a “present interest” gift or a “future interest” gift, only give gifts to your spouse or deliver all gifts to non-spouse recipients within the same calendar year.”
Is someone aware of an official source (IRS, Treasury, Tax Court opinion, etc.)?
I’m trying to be helpful, not argumentative. Harry Sit is the closest person out there to an I Bond expert. Even David sources Harry’s article when discussing the I Bond Gift Box and all related aspects of it. To me it seems pretty clear. I Bonds count as a gift in the year they are purchased. If less than the annual gift exclusion, the gift is not taxable and no IRS form is required. If more, a gift tax form is required using one’s lifetime gift exclusion, unless the recipient is your spouse to whom gifts are unlimited. There is no IRS source for I Bond gifts purchased for a non-spouse and delivered in a future year or Harry would not have written it definitively, instead of indicating it is ambiguous. He suggests delivering such a gift in the year purchased to avoid that ambiguity. Beyond that, I don’t believe anyone has found such a ruling.
I appreciate the effort but I can’t rely on some random person’s opinion, no matter how well-intentioned they may be.
Well, Harry is not random, but I understand your desire for a definitive answer from the IRS as the ultimate source for tax matters. You won’t find one just, as he didn’t provide one, hence the ambiguity and advice he provided. Beyond that, I wish you good luck.
Carlos, this is a tough question, and I wonder if there even is an explicit IRS directive since it is so rarely done (over the limit). I would guess if you ask a CPA, you would get a shrug in return. The IRS FAQ on gift taxes makes no mention of savings bonds. Here are IRS instructions for Form 709: https://www.irs.gov/instructions/i709
There is only one mention of savings bonds and it is vague: “If you buy a U.S. savings bond registered as payable to yourself or a donee, there is a gift to the donee when the donee cashes the bond without any obligation to account to you.”
Good article ahead of the 10/24/25 CPI Report for September.
Even with the questions over the data, economists aren’t looking for anything dramatic from the actual numbers.
The Dow Jones consensus has the CPI report showing 3.1% annual inflation levels on both the headline, or all-items, gauge as well as the core, which excludes food and energy. Economists see the monthly headline number rising 0.4% and 0.3% for core, right in line with the August gains.
https://www.cnbc.com/2025/10/21/this-weeks-critical-inflation-report-comes-with-doubts-about-the-data.html
Are you worried that the inflation numbers could be corrupted by bias as the independence of a number of agencies is under attack?
Yes, this is something to watch. It’s concerning.
David,
A thought I’ve had is that, while manipulated/fabricated lower inflation data certainly is bad for I Bonds as a safe investment in the long run; it actually is another advantage I bonds might have over TIPS and other Treasuries.
If the “market” begins to realize that published inflation doesn’t match reality, they’re going to demand higher Real and Nominal rates to compensate for true inflation. This would cause bond price declines and capital losses on TIPS and Treasuries. But I Bonds are always redeemable at face.
Obviously it’s not great as a long-term investment in I bonds as their return over time would be reduced. But it does provide some capital preservation protection that TIPS don’t (you can hold to maturity, but miss out on higher real rates in the meantime). If the inflation manipulation got bad enough and I bond interest too low in comparison, you could simply roll your I bonds into something else without any loss of capital. For example, you could roll into TIPS only AFTER real rates had moved way up to compensate for the artificially-low inflation.
If you stick to a target date redemption / hold to maturity strategy, this doesn’t matter as much. But it’s a nice contingency plan to have available if things go off the rails and you have to move to Plan B.
Looks to me like this coming 5-year TIPS auction may yield around 1.1% above inflation, no?
The new 5-years are tricky to predict and real yields keep moving around. I’d guess around 1.2% right now.
So odd this (probably temporary) gift box loophole…Just to be sure, I can buy two $10K I-bonds in my gift box for my wife this month to lock in the higher interest rate and then after five days deliver them to my wife even though we’ve both already purchased $10K each in I-bonds in 2025? She could then do the same for me, correct? I’m pretty sure that we each already emptied our gift boxes earlier in the year when instructed to by Treasury Direct.
Given this loophole, technically, couldn’t a couple each buy an unlimited number of I bonds in their gift boxes this month to gift to one another after five days?
Thank you.
I think your theory is correct. As I have noted, I am not a fan of this loophole but it is legit and may have existed for years before high variable rates of 2021 brought it to light. I am expecting a move to change the rules by the end of the year. (But I thought that last year, too.)
Not a loophole to some! One could do the same by owning and then transferring part/all ownership! The restraint is ONLY on the direct purchase and timing in relation to other forms of “transfers”! I received the recent email and only have $50 in gift box…why a big deal to TD? Helpful experience for whom? And, why in over a year no regulatory notice of possible changes? In the interim, go with the flow!
Would you choose the I bond October purchase over the 5 Year Tips coming up?
For the first $10,000 I was investing I’d prefer the I Bond, which has nice advantages over the TIPS: better compounding, a flexible maturity, tax deferral and can never go down in value. But of course I also like TIPS.
For me (aged 52.5), I feel like being able to buy TIPS in an IRA tips the balance to TIPS.
Interested in counter-arguments, though.
This is a very good point and one I have mentioned before. At some point, it becomes hard to raise $10,000 or $20,000 to purchase I Bonds without selling another asset and triggering a tax liability. (Rolling over lower-fixed-rate I Bonds is a decent option, though.) Buying TIPS in an IRA, by selling another asset, is much easier to pull off without any tax hit.
Probably a silly question, but what’s is the best/safest method for transferring cash to a trusted partner for the purpose of implementing the gift box strategy? I’ve never needed to transfer more than the Zelle limit, and my bank only allows transfers to accounts I personally own. Any advice appreciated!
In my case, my wife and I both use the same account to fund the purchases, so that is extremely simple. If you need to deliver the money, could you mail a check?
Other options could include establishing a joint bank account or wiring the money (safe, fast, but comes with a fee).
FYI, If this “trusted partner” is not your spouse be aware of the gift tax limits.
Question about I-Bond Gifting Limits and October Purchase Timing
Last week, I delivered $20K in I-Bond gifts to my spouse (and she did the same for me), following the recent Treasury guidance on gift deliveries.
I’m now wondering:
Can I still purchase an additional $10K I-Bond gift for my spouse in October—before the fixed rate potentially drops?
My plan is to redeem our 2021 I-Bonds (with 0% fixed rate) in January 2026, penalty-free. The October gift (at 1.1% fixed rate) would effectively replace that redeemed amount and lock in a better long-term rate.
Would appreciate any insights on whether this additional gift purchase is allowed under current annual limits and Treasury rules.
Based on well-documented anecdotal evidence, you can purchase additional gift-box I Bonds and then deliver them more than five days later. Changes could be coming to this gift-box program, but so far, nothing appears to have changed.
Just to be sure I understand this correctly:
1. If my wife and I already purchased I-Bonds of 10K each in 2025, we can still gift each other another 10K each and deliver the gift in 2025?
2. If we hadn’t already purchased I-Bonds in 2025, gifting each other in 2025 would count against the 10K limit and we can’t buy any more?
Thanks.
Both 1 and 2 appear to be correct, based on the evidence we have seen and experienced.
“Purchases in October will receive the 3.98% fixed rate for a full 6 months, and then transition to the next variable rate, combined with the current fixed rate of 1.10%.”After the above sentence, would it be helpful to add a similar chart to the one you used above to show the next composite rate after the current 3.98% if you purchase the current I Bond before the end of October:
0.2% = variable rate of 3.02%, fixed rate 1.1%, composite rate of 4.13%
0.3% = variable rate of 3.22% fixed rate 1.1%, composite rate of 4.33%
0.4% = variable rate of 3.42%, fixed rate 1.1%,composite rate of 4.54%
This has been my argument for buying I Bonds now. As you mentioned, the Fed is likely to cut interest rates this month and also again later in 2025 or early 2026. That 4.13% – 4.54% composite rate (whichever it turns out to be) is going to look very attractive 6 months from now compared to where nominal treasuries are likely to be at the time.
I added this info. I hate doing this calculation since my error rate seems to be high. I think it is right, however.
David, you said:
“If the result falls into this range, the new composite rate should be close to or higher than the current rate of 3.98%, even with the fall in the fixed rate to 0.90%. Purchases in October will receive the 3.98% fixed rate for a full 6 months, and then transition to the next variable rate, combined with the current fixed rate of 1.10%.”
I think you meant current composite rate not fixed rate. I like and appreciate your column. Keep up the good work.
Corrected. Thanks.