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Treasury Series I Savings Bond Rate Update (May 2013)

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With the release of the March 2013 CPI-U figures, we now know the variable interest rate on Series I Savings Bonds for the next six months starting in May and it continues to be low (but it’s an increase from the last six months – so that’s good right?).

The March 2013 CPI-U figure was 232.773 and the September 2012 CPI-U figure was 231.407 so we can calculate a semi-annual increase of 0.590% and we’d expect the variable component of the bond to be 1.18%. The only question is whether there will be any change in the fixed rate, which currently sits at 0.0%. With interest rates so low, no one expects that to change anytime soon.

That said, using the equation:
Bond rate = Fixed rate + 2 x Semiannual inflation rate + (Semiannual inflation rate X Fixed rate)
Bond rate = 0 + 2 x 0.0059 + (0.0059 X 0)
Bond rate = 0.0118

So we’d expect the interest rate on Series I Savings bonds to be 1.18% in May.

{ 11 comments, please add your thoughts now! }

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11 Responses to “Treasury Series I Savings Bond Rate Update (May 2013)”

  1. NateUVM says:

    Jim, the semi-annual inflation rate from the last six months was 0.88%, resulting in an overall I-Bond rate of 1.76%. In both cases, the current figures (for the next six months) represent a decrease, but you referenced them as low, but an increase over the last six months.

    Am I missing something, or was that a typo? I really want to be missing something… An increase would be welcome!! :)

  2. Michael says:

    Nate: The 0.88% is the old # from the *previous* six months. The Nov rate (current until end of month) was 1.76%. The new variable rate, starting the 1st of next month, will be 1.18%. I suspect he was referencing an increase in the CPI vs. an increase in the rate.

  3. NateUVM says:

    Michael, perhaps he meant that it’s “still” an increase, resulting in a positive rate for the I bonds…? Still, given that he’s specifically talking about the variable rate and that it was an increase over the previous 6 months, it’s anything but clear.

    Was just hoping I was following the calc wrong (though, I am pretty sure I am not).

  4. Shafi says:

    About 20 years ago, I bought one Series EE bonds. We want to cash it in.

  5. I remember receiving these from my grandparents growing up, although the rate was higher than they probably will be for some time.

  6. admiral58 says:

    No need to buy these bonds at these rates

  7. Michael says:

    admiral58: Depends. If you’re looking to build a significant position in I-Bonds due to the inflation protection then you need to buy them on an ongoing basis due to the annual purchase limits. Also, you could do a lot worse than a tax-advantaged 1.18% (free of state taxes, and tax-deferred [if not tax free] at the federal level).

  8. Diversified Investor says:

    Diversify, diversify, diversify – been off and on laddering I-bond since 2006. Inflation will eventually rise. If your investments are diversified, I-bonds can be a less risky way to hedge against inflation (Gold/Commodities can be another way if you really like taking risks). In addition to potential being free from state tax, if I-Bonds are utilized for qualifying educational expenses and you qualify, interest can tax exempt – Triple Bonus! Remember, it’s not what you make, but what you get to keep that matters…..invest smart, nor hard.

  9. David M says:

    Assuming the government is calculating inflation correctly/fairly – the interest fromt the inflations component does not matter. 2% inflation 2% return – 5% inflation 5% return – for a net 0 after inflation.

  10. Diversified Investor says:

    David M: Correct – Ibonds are less risky way to “hedge” or “protect” your purchasing power against inflation, not beat it.

  11. David M says:

    Diversified Ivestor – thanks for the reply.

    Or beat it – if you purchased – years ago.

    I purchased my I-Bonds in 2000 to 2003. My fixed rates – on top of the inflation rate – is 1.6% to 3.6%.

    I’m holding this Bonds at least for a few more years and likely until they mature 30 years from the date of purchase!


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