{"id":182109,"date":"2025-04-12T16:12:44","date_gmt":"2025-04-12T16:12:44","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/finance\/2-86-inflation-rate-4-total-rate-my-money-blog\/"},"modified":"2025-04-12T16:12:44","modified_gmt":"2025-04-12T16:12:44","slug":"2-86-inflation-rate-4-total-rate-my-money-blog","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=182109","title":{"rendered":"~2.86% Inflation Rate, ~4% Total Rate \u2014 My Money Blog"},"content":{"rendered":"


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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. <\/p>\n

New inflation numbers were just announced at BLS.gov<\/a>, which allows us to make an early prediction of the May 2025 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what an April 2025 savings bond purchase will yield over the next 12 months, instead of just 6 months.<\/strong> You can then compare this against a May 2025 purchase.<\/p>\n

New inflation rate prediction.<\/strong> September 2024 CPI-U was 315.301. May 2025 CPI-U was 319.799, for a semi-annual inflation rate of 1.43%. Using the official composite rate formula<\/a>:<\/p>\n

Composite rate formula: [Fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]<\/code><\/p>\n

This results in the variable component of interest rate for the next 6 month cycle being ~2.86 to 2.88%<\/strong>, depending on the fixed rate.<\/p>\n

Tips on purchase and redemption.<\/strong> You can\u2019t 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 \u201ctrick\u201d with I-Bonds is that if you buy at the end of the month, you\u2019ll still get all the interest for the entire month \u2013 same as if you bought it in the beginning of the month. It\u2019s 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. (You should always sell<\/em> at the very beginning of the month.)<\/p>\n

Buying in April 2025.<\/strong> If you buy before the end of April, the fixed rate portion of I-Bonds will be 1.20%. You will be guaranteed a total interest rate of 1.20 + 1.91 = 3.11%<\/strong> for the next 6 months. For the 6 months after that, the total rate will be 1.20 + 2.88 = 4.08%<\/strong>. <\/p>\n

Buying in May 2025.<\/strong> If you buy in May 2025, you will get ~2.88% 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 with some reductions. In the previous 10 days, 5-year TIPS real rates have ranged from 1.25% to 1.72%. That\u2019s a nearly 50 basis point swing! If I had to guess, I\u2019d put a new fixed rate somewhere between 1.0 to 1.3%, for a total rate of about 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.<\/p>\n

If you have an existing I-Bond, the rates reset every 6 months depending on your specific purchase month. Everyone will eventually get this variable rate. Your bond rate = your specific fixed rate (based on purchase month, look it up here<\/a>) + variable rate (total bond rate has a minimum floor of 0%). <\/p>\n

Buy now or wait?<\/strong> Between those two options, I\u2019m actually not sure. In the short-term, the rates are no better than T-bills. If you are a long-term holder, you might grab the 1.2% fixed rate \u201cbird in the hand\u201d. But the inflation rate will be higher in May by nearly a whole 1%, and so I\u2019d personally just wait and see what happens in mid-October to buy my limit.<\/p>\n

Also consider that 30-year TIPS rates on 4\/10\/25 were at 2.68%! If you really intend to hold for 30 years, that might be a better deal. I plan to fill out my TIPS ladder a bit more if the rates stay this high.<\/p>\n

Unique features and considerations.<\/strong> I have a separate post on reasons to own Series I Savings Bonds<\/a>, including inflation protection, tax deferral, exemption from state income taxes, and potential tax benefits if used toward qualified educational expenses. <\/p>\n

The main drawback is hassle. You can only buy new savings bonds through TreasuryDirect.gov, which is limited in its customer service resources and features. But as there is no option for paper tax forms nor statements, so your heirs may never know they exist! If they do find it, it may take them several months to close out all the estate paperwork<\/a>. If your password is compromised, they will not replace any lost or stolen savings bonds. The juice may not be worth the squeeze when you can own individual Treasury bonds or TIPS within any full-service brokerage account. <\/p>\n

Annual purchase limits.<\/strong> The annual purchase limit is now $10,000<\/a> in online I-bonds per Social Security Number. For a couple, that\u2019s $20,000 per year. As of 2024. you can only buy online at TreasuryDirect.gov<\/a>, after making sure you\u2019re okay with their security protocols<\/a> and user-friendliness. (No more tax refund savings bonds.) Technically, the purchase limits are per Social Security Number or Employer Identification Number<\/em>. For those looking for another way to expand their purchasing power, that means you can also buy for a child, grandchild, LLC, or a trust.<\/p>\n

Bottom line.<\/strong> Savings I bonds are a unique, low-risk investment that are linked to inflation and only available to individual investors. You can now only purchase them online at TreasuryDirect.gov. For more background, see the rest of my posts on savings bonds<\/a>. <\/p>\n

[Image: 1942 US Savings Bond poster \u2013 source<\/a>]<\/p>\n<\/div>\n\n","protected":false},"excerpt":{"rendered":"

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. 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