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# Series I Savings Bond Rate Update (May 2011)

It looks like the Series I Savings Bond [3] may be competitive again. After a few pathetically low rate adjustment cycles, we can blame low inflation and the economic recession for that, it seems as though the variable rate for Series I Savings Bonds will once again make them competitive with savings account rates [4] again.

To recap, Series I Savings Bond rates are a combination of a fixed rate, which is for the life of the bond, and a variable rate, which is adjusted for inflation as measured by the CPI-U. The equation itself is a little more complicated but you can use this Series I bond rate calculator [5] to help you do the math (the equation isn’t very hard, it’s just hard to explain).

How are we able to predict the rate in May? Easy, the CPI-U we will use is for March and is announced in April (this time it was April 15th). We simply calculate the change from September 2010 (announced in October 2010) and March 2011 and know what the variable interest rate is.

## New Variable Rate

The September 2010 CPI-U was 218.439 and the March 2011 CPI-U was 223.467, according to the BLS [6]. Some math tells us the increase was 2.302% over the six months, which comes out to 4.604% for the year. If you own a Series I Savings bond, you know your fixed rate and you can calculate your effective rate for the coming period (adjusting for when you purchased the bond). It’s harder to predict what the fixed rate on new bonds will be but we do know that the current fixed rate on Series I bonds is 0%.

Now that it’s May, we know the fixed rate on new bonds will remain 0.00%, so the effective rate will be 4.6%.