As promised last month in my How To Predict I-Bond Savings Bond Rates post, the CPI-U inflation data for September is out, and we can get busy predicting the new I-Bond rates that will be officially announced on November 1st, so we can make educated decisions on to buy now or later. Spoiler: it’s gonna be high, as in over 6% APR high. But, first the math:
The inflation-linked part of the I-Bond rate is based on the inflation change for the last six months as measured by the CPI-U:
March CPI-U = 193.3
September CPI-U = 198.8
198.8/193.3 = 1.028453, or a semi-annual increase of 2.8453%.
Fixed rate = Unknown, most likely between 1.0-1.4% (Currently 1.2%)
Total rate = Fixed rate + 2 x Semiannual inflation rate + (Semiannual inflation rate X Fixed rate)
If we assume a fixed rate of 1.2%, we get
Total rate = 0.012 + (2 x .028453) + (.012 x .028453)
Total rate = 1.2% + 5.72%
Total rate = 6.92% (!)
For a range of fixed rates of 1.0% to 1.4%, we get a good prediction of the total rate range to be 6.72-7.13% annualized return.
Blows Emigrant Direct out of the water, eh? Of course, there are many differences to consider, not the least of which you can’t cash out a savings bond for at least a year. Also, rates are re-adjusted every six months. I’m just doing the math tonight, tomorrow I look more into weighing my options, and figuring out the best time to buy – now or wait until November?