The March inflation numbers are now out, which means we can now predict the new (May 2012) rate for Series I Savings Bonds…

As a reminder, the rate for Series I Savings Bonds is made up of two pieces: the fixed rate and the variable rate. The fixed rate is set by the feds, and has been at 0% since the fall of 2010. The variable rate is pegged to inflation, and can be easily calculated if you know how much the CPI-U has changed over the past six months. To do this, simply divide the old CPI-U into the new one and you’ll get an estimate of the semi-annual inflation rate. From there, you just double it to estimate the annual change and add the fixed rate.

Back in September, the CPI-U was at 226.889 and by this past March it had increased to 229.392. This works out to a 1.103% increase (229.392/226.889 = 1.01103). If we double this, we get 2.206%, which rounds to 2.21%. So… The variable rate should with to 2.21% starting in May.

As for the fixed rate, I seriously doubt it will be increased from the current 0%, but stranger things have happened. Assuming it remains at 0%, you can either by now and get 3.06% (current variable rate + 0%) for the next six months, followed by 2.21% (new variable rate + 0%) for six months, or you can wait until May 1st and get 2.21% for six months (new variable rate + presumptive fixed rate).

If it were me, I’d probably buy now instead of waiting. What about you? Do you invest in I Bonds? If so, have you already taken the plunge for this 2012?

P.S. I’ve had a couple of people ask me about the best place to find inflation data. I always go straight to the source — the Bureau of Labor Statistics. Here’s a direct link. Check the box under the “**Price Indexes**” heading for “**CPI for All Urban Consumers (CPI-U) 1982-84=100 (Unadjusted)**” and click “**Retrieve Data**.”

I am new to I bonds and still am confused by the rates. If I buy now at 2.21%, what happens to the rate of that bond in november. Is a new rate calculated for the next 6 month term? Thanks.

@Rodney the rate is listed as the annualized rate but changes every six months. So the new i-bond rate will (assuming the fixed component stays at 0%) be 2.21%, annualized, even though that rate will only apply for six months (at which point it will probably change again.)

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]

Using this formula, the new i-bond rate will be 4.42%, and not 2.21%, correct?

Hi,

Forst off, I enjoy the articles on your site, very informative. I was wondering…does the 2.21%…that would be 4.42% annually if the next November inflation component is also 2.21%?

Thank you!

Travis: Indeed, I slipped up and said fixed where I meant variable in that passage. Good catch — thanks for letting me know.

Ummm I’m a bit confused by your explanation of the current yield rates. I think you used the term “fixed rate” instead of “variable rate” Here is the paragraph I am referring to:

“As for the fixed rate, I seriously doubt it will be increased from the current 0%, but stranger things have happened. Assuming it remains at 0%, you can either by now and get 3.06% (current fixed rate + 0%) for the next six months, followed by 2.21% (new fixed rate + 0%) for six months, or you can wait until May 1st and get 2.21% for six months (new fixed rate + presumptive fixed rate).”

Very informative, thanks.

I would buy now. Why risk the variable later. Things look good. If you always are waiting for a better deal, you will always miss the best ones.