Tracking 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 November 2020 through April 2021 will pay an inflation-adjusted annual rate of  1.68%, and when combined with a fixed rate of 0.0%, creates a composite rate of 1.68%. The inflation-adjusted rate will be reset on May 1, 2021.


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 very simple to track as an investment. Just download the Savings Bond Wizard, 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.

17 Responses to Tracking Inflation and I Bonds

  1. 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.

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  3. 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.

  4. 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.

  5. Lyle C. says:

    Thanks Tipswatch, very useful info.

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