{"id":9646,"date":"2022-10-20T06:06:31","date_gmt":"2022-10-20T10:06:31","guid":{"rendered":"https:\/\/kerryhannon.com\/?p=9646"},"modified":"2022-10-20T07:42:19","modified_gmt":"2022-10-20T11:42:19","slug":"time-to-scoop-up-those-i-bonds","status":"publish","type":"post","link":"https:\/\/kerryhannon.com\/?p=9646","title":{"rendered":"Time to scoop up those I bonds"},"content":{"rendered":"
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The Treasury Department\u2019s popular <\/span>inflation-protected I bonds<\/a>\u00a0won\u2019t return as much when the rate adjusts on November 1, so buying them now is a better bet.<\/span><\/div>\n<\/div>\n<\/div>\n<\/div>\n
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The rate will be at least 6.48%, according to estimates from Ken Tumin, a senior industry analyst at Lending Tree and founder of\u00a0DepositAccounts.com<\/a>, down from the current 9.62% the I bonds are offering until the end of October. The rate applies for the first six months you hold the bond.<\/p>\n

That\u2019s the second-best rate since November 2005 when the composite rate was 6.73% and the seventh-highest since the bond\u2019s introduction in 1998, according to\u00a0Treasury data<\/a>. But if inflation cools quickly over the next six months, the bond won\u2019t be worth as much.<\/p>\n

Read on Yahoo Money<\/a><\/strong><\/p>\n

\u201cFor November I bond purchases, we only can know the first six months I bond inflation rate. We won\u2019t be able to estimate exactly the May I bond inflation rate until mid April 2023,\u201d Tumin said. \u201cIt\u2019s possible that the inflation rate could be much less. Then, the I bond will look much less appealing \u2014 like it has been before 2021.\u201d<\/p>\n

How the rate is calculated<\/strong><\/h2>\n

The I bond composite rate is made up of a fixed rate and a semiannual inflation rate calculated from a formula based on the six-month change in the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items.<\/p>\n

Then, those two rates are plugged into the following formula to come up with the composite rate:<\/p>\n

[Fixed Rate + (2 x Semiannual Inflation Rate) + (Fixed Rate x Semiannual Inflation Rate)]<\/strong><\/p>\n

If the fixed rate stays at zero \u2014 where it has been since May 2020 \u2014 and the annualized inflation rate is 6.48% (or 3.24% for the semiannual rate), then the I bond\u2019s composite rate in November would be 6.48%, Tumin calculated. The fixed rate is announced every May and November by the Treasury Department.<\/p>\n

The rate at purchase is in effect for the first six months you hold the bond, then the rate is recalculated based on its fixed rate and the new inflation rate for six months, and so on.<\/p>\n

The high return on I bonds in the last year is squarely because of inflation, since the fixed rate has remained at zero.<\/p>\n

That\u2019s not always the case.<\/p>\n

For instance, from November 1999 to November 2000, the composite rate on I bonds fluctuated between 6.49% and 7.49%, not because the inflation rate was high but because the fixed rate was much higher at 3.4% to 3.6%.<\/p>\n

In November 2005, both the fixed rate and semiannual inflation rate were moderately higher (1% and 2.85%, respectively), which combined for a high composite rate of 6.73% on I bonds purchased then.<\/p>\n

But since inflation has been propping up the I bond rate lately, when it cools as the Federal Reserve is aiming to do \u2014 so, too, goes the rate. But it never can go negative \u2014 you can\u2019t lose your principal by design.<\/p>\n

\u201cI think the best argument for I bonds is that it does protect you from high inflation, and unlike marketable bonds (like TIPS), there\u2019s no risk of principal loss if you sell before maturity,\u201d Tumin said. \u201cCDs and high yield savings accounts can\u2019t say this.\u201d<\/p>\n