The BLS has just released the March 2013 inflation numbers which mean that we can now predict the May 2013 I-Bond rate.
As a reminder, I-Bond rates are pegged (in part) to inflation estimates, though there is also a fixed component set by the Treasury.
The inflation component is variable and reflects recent changes in the CPI-U, whereas the fixed component is a premium to inflation, and thus represents your “real” return (ignoring taxes).
The CPI-U increased from 231.407 in September 2012 to 232.773 in March 2013. That’s a semi-annual increase of 0.59%, calculated as follows:
232.773 / 231.407 = 1.0059
Doubling that gives us an annual (variable) rate of 1.18% vs. the previous variable rate of 1.76%. As of May 1st, the Treasury has confirmed that the fixed rate will remain at 0%, so…
If you buy between May 1st, 2013 and October 31st, 2013 then you’ll lock in that 0% fixed rate and receive a composite rate of 1.18% for the subsequent six months.
If you wait to buy until November 2013… Who knows?
Buy now or later?
When deciding whether to buy now or wait to see if rates improve, there are a couple of things to consider. For starters, there is an annual purchase limit of $10k, so you don’t want to wait forever and miss out on your annual allotment.
You also need to weigh the likelihood of getting a better fixed rate vs. what is available right now. As noted above, the fixed rate landscape has been, and will likely continue to be, rather bleak. In fact…
Looking back to 1998 when I-Bonds were introduced, the fixed rate was 3% or higher (wow!) through November 2001, at which point it started slipping. It first hit 0% in May 2008 and, though it bounced up bit in the subsequent two years, it has been stuck at 0% since November 2010.
Given the above, I’ve adopted the approach of buying our savings bonds as early as possible. In fact, my wife and I bought our $10k annual allotments back in January and we also picked up an extra $5k with our tax refund.