May 2023 fixed rate will be 0.90%, total composite rate is 4.30% for next 6 months. For Savings I bonds bought from May 1, 2023 through October 31, 2023, the fixed rate will be 0.90% and the total composite rate will be 4.30%. The semi-annual inflation rate is 1.69% as predicted (3.38% annually), but the full composite rate is dependent on the fixed rate for each specific savings bond and so it is a little bit higher.
Every single I bond will earn this inflation rate of ~3.40% eventually for 6 months, depending on the initial purchase month. The fixed rate was higher than I predicted, although still a bit lower than short-term TIPS yields. You may wish to wait until October if you don’t like what you see right now. See you again in mid-October for the next early prediction for November 2022.
Original post from 4/12/23:
Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. With a holding period from 12 months to 30 years, you could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.
New inflation numbers were just announced at
New inflation rate prediction. September 2022 CPI-U was 296.808. March 2023 CPI-U was 301.836, for a semi-annual increase of 1.69%. Using the
Tips on purchase and redemption. You can’t redeem until after 12 months of ownership, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A simple “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month – same as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.
Buying in April 2023. If you buy before the end of April, the fixed rate portion of I-Bonds will be 0.40%. You will be guaranteed a total interest rate of 0.40 + 6.49 = 6.89% for the next 6 months. For the 6 months after that, the total rate will be 0.40 + 3.39 = 3.79%.
Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on April 30th, 2023 and sell on April 1st, 2024, I estimate that you’ll earn a ~4.48% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you theoretically buy on April 30th, 2023 and sell on July 1, 2024, you’ll earn a ~5.07% annualized return for an 14-month holding period. Comparing with the
Buying in May 2023. If you buy in May 2023, you will get 3.38% plus a newly-set fixed rate for the first 6 months. The new fixed rate is officially unknown, but is loosely linked to the real yield of short-term TIPS. My rough guess is somewhere between 0.2% and 0.5%. The current real yield on short-term TIPS is lower than it was during the last reset, when the fixed rate was set at 0.4%. Every six months after your purchase, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.
If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (based on purchase month, look it up
Buy now or wait? If you buy in April, you will get the remnants of the last period of higher inflation, and a fixed rate that won’t change much for May. If you wait until May, there may be a small possibility that the fixed rate might go up, but even if it does, it will take a while for that to breakeven due to the lower initial inflation rate. Therefore, my opinion is that I would purchase now in April. Note that the
Unique features. I have a separate post on
Over the years, I have accumulated a nice pile of I-Bonds and consider it part of the inflation-linked bond allocation inside my
Annual purchase limits. The annual purchase limit is
Note: Opening a TreasuryDirect account can sometimes be a hassle as they may ask for a medallion signature guarantee which requires a visit to a physical bank or credit union and snail mail. This doesn’t apply to everyone and seems to have gotten better recently, but the takeaway is don’t wait until the last minute.
Bottom line. Savings I bonds are a unique, low-risk investment that are linked to inflation and only available to individual investors. You can only purchase them online at TreasuryDirect.gov, with the exception of paper bonds via tax refund. For more background, see the rest of my
[Image: 1950 Savings Bond poster from US Treasury –
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