Inflation and I Bonds

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.)



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:

The composite rate for I bonds issued May 1, 2014 – October 31, 2014 is 1.94%
Here’s how we set that composite rate:
Fixed rate 0.10%
Inflation rate 0.92%
Composite rate = [fixed rate + (2 x inflation rate) + (fixed rate x inflation rate)] [0.0010 + (2 x 0.0092) + (0.0010 x 0.0092)]
Composite rate [0.0010 + 0.0184 + 0.0000092]
Composite rate 0.0194092
Composite rate 0.0194
Composite rate 1.94%

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.

27 Responses to Inflation and I Bonds

  1. Pingback: US I Bonds seem to be pretty at a pretty good rate this 6 month period and are looking better for next. I’m curious if I happen to be missing something – Frank Radtkee

  2. Paul says:

    “Savings Bond Wizard” isn’t available anymore and has not been for a couple of years, as I recall!B

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  4. Andrew Morris says:

    Re: purchasing an extra $5,000 worth of iBonds using my Tax Refund: Can that $5,000 tax refund be deposited directly to my Treasury Direct C of I account? Or must that refund be used to purchase paper iBonds? The Form 8888 instructions and the instructions on Treasury Direct seem ambiguous to me:

    From Form 8888:
    TreasuryDirect® Account
    You can request a deposit of your refund (or part of it) to a TreasuryDirect® online account to buy U.S. Treasury marketable securities and savings bonds. For more information, go to
    U.S. Series I Savings Bonds
    You can request that your refund (or part of it) be used to buy up to $5,000 in series I savings bonds. You can buy them electronically by direct deposit into your TreasuryDirect® account.

    From Treasury Direct:
    Using Your Tax Refund for TreasuryDirect
    Do you know you can have your tax refund directed to your TreasuryDirect account to use for Treasury security purchases?

    TreasuryDirect offers flexible options for all your security purchases. One option to fund your account is to use your tax refund.

    You can request the IRS or your state tax department to deposit your tax return directly into your TreasuryDirect account where you can use the funds to purchase savings bonds or marketable Treasury securities. All you need to do is provide TreasuryDirect’s routing number and your TreasuryDirect account number in the refund instructions on your tax return.

    On your tax return, enter:
    the TreasuryDirect routing number, 051736158, in the “Routing number” field.
    your TreasuryDirect account number in the “Account number” field.
    “Savings” as the account type.
    Providing these instructions in the “refund” area on your tax return will direct your refund to the Zero-Percent C of I in your TreasuryDirect account where it will be available to fund the purchase of one or more Treasury securities.

    You can also use your refund to purchase Series I savings bonds in paper form.

    • Tipswatch says:

      I’ve never used the tax refund method, and i had assumed you it would have to be in paper I Bonds, but the wording you present here makes it look like it can be sent to Treasury Direct. Then the question would be: Would that deposited money count against your $10,000 purchase cap?

      • Andrew Morris says:

        Exactly – that is my question. I guess I’ll contact Treasury Direct for clarification. I actually had luck in the past getting a helpful response from Treasury Direct to a question I’d posed. Not sure how to go about getting clarification from the IRS.

      • Andrew Morris says:

        Here’s the response I got from Treasury Direct:

        “You must purchase the paper securities and then the electronic separate. If you put it all in your TreasuryDirect account you will only be entitiled to purchase the $10,000 limit.”

      • Andrew Morris says:

        In case anyone is interested I did the tax refund method and received $5,000 worth of paper iBonds a little more than three weeks after filing my tax return. They were sent in denominations of (6) $50, (1) $200, (1) $500, (4) $1000 paper iBonds in twelve (count ’em that’s 12) separate envelopes all delivered by the USPS on the same day (in spite of Louis DeJoy’s best efforts). Since I already have a Treasury Direct account, the next step for me was going into my Treasury Direct account to convert the paper iBonds into electronic iBonds which results in the creation of a manifest which one prints out, signs and mails with the unsigned (12) paper iBonds to a Treasury office. Those were mailed this past Saturday (certified mail/return receipt requested).

        So up to this point in time this seems to have worked just fine — I don’t know if I will do it again in the future as I don’t know that I want to spend time worrying about the the performance of the postal service and the IRS. And it was a bit time consuming explaining to my accountant that you could do this using IRS Form 8888, dealing with the conversion on Treasury Direct and traveling to and waiting in line at the post office to mail the paper iBonds to Treasury via certified mail. But at the least it’s been an interesting exercise.

  5. Mark in LA says:

    Hey Dave, It looks like you’re missing the six month periods Mar 2019 – Sep 2019 and Sep 2019 – Mar 2020 above. I believe those periods showed inflation of 1.01% and .53% respectively.

    • Tipswatch says:

      Mark, thanks for noticing that. This happens because these image files are so large that they have to be broken up into several files. I seemed to have lost track where one ended and the other began. It is fixed now, and I set up a “reminder” in the Excel file to show the current live section. Appreciate it.

  6. Pingback: I Bonds - I Like Them, Should You Too? | Dividends Diversify

  7. JeffT says:

    Just one serious problem with having I Bonds through TreasuryDirect. They don’t issue account statements. Ever. The only proof you have of your bond ownership are screenshots, and they don’t contain enough information (like your full name, SSN, and address). Some people are very uneasy with this, and I can understand why. I read a post from one person who wanted to use his I Bond holdings as collateral for a loan, and had a devil of a time satisfying his lender that he did, in fact, own the bonds.

  8. cynthiapond says:

    Thank you for your info and explanations of I-bonds. I didn’t know where to find out about upcoming variable rates on I-bonds. I also didn’t know I could redeem my 2003 I-bond anytime if I wanted to (which I don’t). Your site is more helpful to me than Treasury Direct’s website. Thanks for maintaining your site.

  9. Lyle C. says:

    Thanks Tipswatch, very useful info.

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