November 2022 rates officially announced. Press release of 01/11/2022. The inflation-indexed variable rate for the I bonds purchased from November 2022 to April 2023 will indeed be 6.48% as planned. Each unique I bond will also earn this forward rate for 6 months, based on the month of initial purchase. The fixed rate for I bonds purchased from November 2022 to April 2023 will be 0.40% (instead of zero, and right in the middle of my guess), for a composite rate of 6.89% for 6 months. Always a bargain, whether buying now or in January when purchase limits reset.
See you in mid-April for the next early prediction for May 2023.
Original post 10/13/22:
Inflation still 🚀 😬 Savings Bonds I are a unique, low-risk investment backed by the US Treasury that pays a variable rate of interest linked to inflation. With a holding period of 12 months to 30 years, you could hold them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.
New inflation figures have just been announced in BLS.govwhich allows us to make an early forecast of November 2022 savings bond rates a few weeks before the official announcement of the 1st. It also lets you know exactly what a purchase of October 2022 Savings Bonds will yield over the next 12 months, instead of just 6 months. You can then compare that to a November 2022 purchase.
New inflation rate forecast. The March 2022 CPI-U was 287.504. The September 2022 CPI-U was 296.808, a six-month increase of 3.24%. By using the official formulathe variable component of the interest rate for the next 6-month cycle will be 6.48%. You add the fixed and variable rates together to get the total interest rate. The fixed rate hasn’t been above 0.50% for over a decade, but if you have an older savings bond, your fixed rate could be as high as 3.60%.
Purchase and redemption advice. You cannot redeem before 12 months of ownership, and any redemption within 5 years incurs 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 will still get full interest for the whole month – as if you had bought it at the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the deadline, your effective purchase date will be pushed to the next month.
Purchase in October 2022. If you buy before the end of October, the fixed rate part of the I-Bonds will be 0%. You will be guaranteed a total interest rate of 0.00 + 9.62 = 9.62% for the next 6 months. For the next 6 months, the total rate will be 0.00 + 6.48 = 6.48% for the following 6 months.
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 October 31, 2022 and resell on October 1, 2023, you will earn a ~7.01% annualized return for 11 month holding period, the interest of which is also exempt from state income tax. If you theoretically buy on October 31, 2022 and resell on January 1, 2024, you will earn a ~6.90% annualized return for a 14 month holding period. By comparing with the best interest rates in october 2022you can see this is much higher than a current top savings account rate or 12 month CD.
Purchase in November 2022. If you buy in November 2022, you will get 6.48% plus a newly fixed fixed rate for the first 6 months. The new fixed rate is officially unknown, but it is loosely tied to the actual short-term TIPS yield. My guess is somewhere between 0.1% and 0.6%, but who knows. If I 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, rates reset every 6 months based on your month of purchase. Your bond rate = your specific fixed rate (based on the month of purchase, consult it here) + variable rate (the total bond rate has a minimum floor of 0%). So if your fixed rate was 1%, you would earn a rate of 1.00 + 9.62 = 10.62% for six months.
Buy now or wait? Since the current I bond rate is already much higher than equivalent alternatives, I would personally buy in October to lock in the high rate for as long as possible. I would take the bird in the hand, even if you could get a slightly higher fixed rate in November. I have already bought to limits in January 2022, and will probably buy again in January 2023. However, I am also buying TIPS because the actual yield is currently higher than I bonds.
Unique characteristics. I have a separate post on reasons to hold series I savings bondsincluding inflation protection, tax deferral, state income tax exemption, and education tax benefits.
Over the years I’ve accumulated a nice stack of I-Bonds and consider it part of the inflation-linked bond allocation inside my long-term investment portfolio. Currently, inflation protection “insurance” pays off with high returns and no principal risk.
Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds by social security number. For a couple, it’s $20,000 a year. You can only buy online at TreasuryDirect.govafter making sure that you agree with their security protocols and friendliness. You can also purchase an additional $5,000 in Paper I Bonds using your tax refund with IRS Form 8888. If you have children, you can purchase additional savings bonds using a minor’s social security number. TheFinanceBuff has a nice post on gift options if you are in a relationship and want to anticipate your purchases now. TreasuryDirect also allows trust accounts to purchase savings bonds.
Note: Opening a TreasuryDirect account can sometimes be a hassle as they may require a medallion signature guarantee which requires a visit to a physical bank or credit union and postal mail. This doesn’t apply to everyone, but the takeaway is not to wait until the last minute.
Bottom line. Savings Bonds I are a unique, low-risk, inflation-linked investment only available to individual investors. You can only buy them online at TreasuryDirect.gov, except for paper bonds through a tax refund. For more information, see the rest of my savings bond posts.
[Image: 1950 Savings Bond poster from US Treasury – source]
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