This chart shows monthly and six-month non-seasonally adjusted inflation numbers that the Treasury uses to set the six-month inflation-adjusted interest rate on U.S. Series I Savings Bonds.
I Bonds purchased from May through October 2021 will pay an inflation-adjusted annual rate of 3.54%, and when combined with a fixed rate of 0.0%, creates a composite rate of 3.54%. The fixed rate will be reset again November 1, 2021.
With the September inflation report released on Oct. 13, we now know that the I Bond’s inflation-adjusted variable rate will rise to 7.12%, annualized, on November 1 (for six months, but the date the rate goes into effect depends on the month when the I Bond was purchased.)
- September inflation report sets I Bond’s inflation-adjusted rate at 7.12%
- I Bonds vs. TIPS: What’s the best bet for inflation protection?
- May 1 reset: I Bond’s fixed rate holds at 0.0%; composite rate soars to 3.54%
- Seeking Yield And Safety? The Best Choice Is U.S. Savings Bonds
Facts about I Savings Bonds
The way I Bonds work
An I Bond is a security that earns interest based on combining a fixed rate and an inflation rate.
- The fixed rate will never change. So if you bought an I Bond in 2014 with a fixed rate of 0.2%, it will continue to have a 0.2% fixed rate for the life of the bond. Purchases through April 30, 2017, will have a fixed rate of 0.0%. I Bonds I bought back in 2000 still carry a fixed rate of 3.4% and will continue to do so through 2030.
- The inflation-adjusted rate changes each six months to reflect the running rate of inflation. That rate is currently set at 2.76% annualized. It will adjust again on May 1, 2017, for all I Bonds, no matter when they were purchased. (Although the effective start date of the new interest rate can vary depending on the month you bought the I Bond, a Treasury oddity.)
Here is a chart from Treasury Direct showing how the timing of the rate change depends on when you purchased the I Bond:
|Issue month of your bond||New rates take effect|
|January||January 1 / July 1|
|February||February 1 / August 1|
|March||March 1 / September 1|
|April||April 1 / October 1|
|May||May 1 / November 1|
|June||June 1 / December 1|
|July||July 1 / January 1|
|August||August 1 / February 1|
|September||September 1 / March 1|
|October||October 1 / April 1|
|November||November 1 / May 1|
|December||December 1 / June 1|
How is the interest rate determined?
To get the actual rate of interest (the composite rate) the Treasury combines the fixed rate and the inflation rate. The combined rate will never be less than 0.0%. However, the combined rate can be lower than the fixed rate. If the inflation rate is negative, it can offset some of the fixed rate.
If the inflation rate is so negative that it would take away more than the fixed rate, the I Bond pays zero interest. But it cannot below zero. This means that I Bonds are protected against deflation. TIPS, on the other hand, will see their principal balance decline in times of deflation, and therefore are less protected.
Here is an example from Treasury Direct on how the interest rate is determined:
Why they are a great investment.
- First, I Bonds are the most conservative and most safe of all investments. Your principal is 99.9999999% safe and it will never decline, ever. If inflation falls to below zero, the inflation-adjusted rate will fall to zero, but not below zero.
- I Bonds allow you fantastic flexibility. You can redeem them after one year, costing you three months of interest. Or redeem them after five years and pay no penalty, or just hold them for 30 years and cash out.
- I Bonds protect you against unexpected inflation. If inflation in the next 30 years suddenly soars to 7%, 10%, 15%, your principal will increase by that amount because of the inflation-adjusted interest rate.
- I Bonds allow you to defer federal income taxes until you redeem them, so you pay zero in taxes until they are sold. This is a big advantage over TIPS, which carry current-year income taxes for both the coupon rate and the inflation adjustment to principal. (Both TIPS and I Bonds are free of state income taxes, an advantage over bank CDs.)
- I Bonds are simple to track as an investment. Use the web-based Savings Bond Calculator, update your information, and check it a couple times a year. This is another huge advantage over TIPS held at Treasury Direct, which is a do-it-yourself proposition, even for downloading yearly tax forms. Want to track current value of your TIPS? Open up Excel and get to work. Treasury Direct is not going to tell you.