November 2021 rate confirmed at 7.12%. The variable inflation-indexed rate for I bonds bought from November 1, 2021 through April 30th, 2022 will indeed be 7.12% as predicted. Every single I bond will earn this rate eventually for 6 months, depending on the initial purchase month.
The fixed rate (real yield) is also 0% as predicted, but realize that the real yield on a 5-year TIPS right now is about negative 1.7%. There is significant demand for inflation protection right now. See you again in mid-April for the next early prediction for May 2022. Don’t forget that the purchase limits are based on calendar year, if you still wish to max out for 2021.
Original post 10/13/2021:
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.
New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the November 2021 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a October 2021 savings bond purchase will yield over the next 12 months, instead of just 6 months. You can then compare this against a November 2021 purchase.
New inflation rate prediction. March 2021 CPI-U was 264.877. September 2021 CPI-U was 274.310, for a semi-annual increase of 3.56%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 7.12%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be up to 3.60%.
Tips on purchase and redemption. You can’t 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 “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month – same as if you bought it in the beginning of the month. It’s 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.
Buying in October 2021. If you buy before the end of October, the fixed rate portion of I-Bonds will be 0%. You will be guaranteed a total interest rate of 0.00 + 3.54 = 3.54% for the next 6 months. For the 6 months after that, the total rate will be 0.00 + 7.12 = 7.12%.
Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on October 31st, 2021 and sell on October 1st, 2022, you’ll earn a ~3.87% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you theoretically buy on October 31st, 2021 and sell on January 1, 2023, you’ll earn a ~4.57% annualized return for an 14-month holding period. Comparing with the best interest rates as of October 2021, you can see that this is much higher than a current top savings account rate or 12-month CD.
Buying in November 2021. If you buy in November 2021, you will get 7.12% 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, and is thus very, very, very likely to be 0%. Every six months after your purchase, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.
If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (total bond rate has a minimum floor of 0%). So if your fixed rate was 1%, you’ll be earning a 1.00 + 7.12 = 8.12% rate for six months.
Buy now or wait? Given that the current I bond rate is already much higher than the equivalent alternatives, I would personally buy in October to lock in the high rate for the longest possible time. Who knows what will happen on the next reset? Either way, it seems worthwhile to use up the purchase limit for 2021 either in October or November. You are also getting a much better “deal” than with TIPS, as the fixed rate is currently negative with short-term TIPS.
Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.
Over the years, I have accumulated a nice pile of I-Bonds and consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.
Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. You can only buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.
Note: Opening a TreasuryDirect account can sometimes be a hassle as they may ask for a medallion signature guarantee which requires a visit to a physical bank or credit union and snail mail. Don’t expect to be able to open an account in 5 minutes on your phone.
Bottom line. Savings I bonds are a unique, low-risk investment that are linked to inflation and only available to individual investors. Right now, they promise to pay out a higher fixed rate above inflation than TIPS. You can only purchase them online at TreasuryDirect.gov, with the exception of paper bonds via tax refund. For more background, see the rest of my posts on savings bonds.
[Image: 1950 Savings Bond poster from US Treasury – source]
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What could one expect to make in interest on a $10,000 purchase, if made by Oct 31 and held for one year?
I’m completely confused on deciding when to buy.
If you buy Nov 1st, that you earn 7+% for ONLY 6 months and then 0% for the next 6 months ????
Whereas if you buy Oct 31st, you earn 3.54% for the first 6 months and then 7.12 % for the next 6 months??
So, in other words…since I’m completely confused…currently, do these I-Bonds ONLY earn a decent interest in their 1st 6 months and crap afterwards? Or is the crap interest rate afterwards due to a 3 month penalty for selling in less than 5 years of being held??
What if inflation continues to stay high – do these I-Bonds keep earning above par interest every 6 months?
It seems (to me anyway), that inflation is here for a good long while… I’m feeling Jimmy Carter era inflation for a long, long, time to come…
If you buy in November, you’ll get the 7.12% for 6 months and then the rate for the 6 months after that will be determined based on future CPI. It is simply unknown, not zero. The rate will adjust semi-annually to track the CPI-U.
“It is simply unknown, not zero. The rate will adjust semi-annually to track the CPI-U.”
Thanks – do you have any guestimate on what you “think” it might be?
I’ve got money sitting in different accounts – some earning 3% @ $25k (~$50 a month) and other money earning less than 1%. It’s too bad there’s a $10k limit but at this point…what the heck – I’ve just got money sitting there doing nothing else for the foreseeable future. I just opened up a Treasury account!
I believe that humans have a recency bias. If inflation has been low for a long time, then the “expected inflation” will likely be lower than it probably should be. This is why I like owning TIPS and I bonds for part of my bond exposure, as if the inflation is as expected, then I just break even, but if the inflation ends up higher than expected, then I’m ahead. The volatility is higher due to fluctuations in real rates, but to me the risk is actually lower given that they are also fully backed by the US government.
Thanks for your post Jonathan. Just to confirm, if I buy in November, I assume the 7.12% rate is an annualized rate, and the actual interest rate I will receive for 6 months will be 3.56% (7.12 / 2), then plus an addition x.x% rate (unknown) for 6 months. In other words, after 6 months, I will have earned 3.56% interest on my i-bond investment? (I realize I cannot redeem them until 1 year at the earliest).
Yes, that looks correct.
Do I get it right that I can buy $10K in October for 3.54+7.12 rate and then buy another $10K in January for 7.12+unknown rate?
Yes.
You could also file your tax return early enough in 2022 to try and get another $5,000 in paper I bonds via tax return before the rate reset. (If you wanted, you can convert paper to electronic later.)
how can you buy I bonds with your IRA money?
I don’t believe there is any direct way to buy I Bonds in an IRA. There is an older article online that says if you have a self-directed IRA AND had paper bonds AND somehow change the ownership title to a willing IRA custodian, you could pull it off, but it just sounds like way too much work to be worth it for individual paper bonds.
https://pocketsense.com/buy-paper-savings-bonds-4915139.html
Besides, savings bonds already offer tax-deferral, so it’s already half-way there, similar to a non-deductible IRA. You buy with after-tax money, but it can compound tax-free for 30 years, and you pay ordinary income tax upon withdrawal. I would simply buy something else in your IRA like real estate/REIT/stocks, and then buy savings bonds on their own separately.
Aren’t REIT real estate funds/ETFs tax inneficient for a taxable brokerage account?
Exactly, I would rather use my IRA funds to buy those types of assets instead of a savings bond, which is already relatively tax-efficient.
I know this is unrelated but I think in your Portfolio updates post you don’t mention which holdings you have in taxable brokerage accounts vs tax deferred accounts. It will be helpful to know. Thank you.
Hi Jonathan,
Is this piece of the article accurate? “buy on April 30th, 2021 and sell on January 1, 2023, you’ll earn a ~4.26% annualized return for an 15-month holding period”
No, it should be buy on October 31st, 2021 and sell on January 1, 2023. In this scenario, you would get credited for 15 months of holding time for October to January (minus the 3 months early withdrawal penalty for 12 months of paid interest), but have an actual holding time very close to 14 months. Fixed, thanks!
Gosh, TreasuryDirect is one of the worst websites I’ve ever used. My account was locked years ago because I tried my password too many times, so you have to call an 800 number and wait 10 minutes for a guy to type in your own security questions to unlock it (why can’t I just do that?) Then the process to add a bank account is printing and filling out a 6-page form, having someone at an actual bank sign it (whyyyy), and mailing it in. So archaic! I don’t remember doing all this in 2012 when I first bought one.
Yup, getting set up is the hardest part. I don’t know when they last updated the software behind that site. I’d definitely link a bank account you plan on keeping for a long time, as it is a big hassle to switch linked bank accounts.
That’s odd about the bank account piece – I didn’t have to print any forms or anything. Just added the routing and account number. Guess I got lucky (somehow).
I didn’t have to do it either when I set up my Treasury Direct account a while ago.
However, looks like things changed. Something to keep in mind. I’ll have to move the funds into the account that TD currently has to avoid dealing with this extra hassle.
This is the message I’m getting when trying to add a bank account online.
As part of our efforts to provide additional security for your investments, you must complete and mail a Bank Change Request Form FS 5512 E to add a new bank or edit an existing bank.
You must sign the form in the presence of an authorized certifying official available at a bank, trust company, or credit union and mail it to us for processing. Certification by a Notary Public is not acceptable.
Your request will not be processed until we receive and approve your form with any necessary supporting documentation. We will notify you by e-mail when your transaction has been completed.
Yes, this one of those times when Ally Bank’s 1-day ACH transfers come in handy 🙂
Agree the site is terrible to navigate as well.
I have an old I Bond purchased back in Nov 2012, How do I know the fix rate of it (didn’t make note of it at time of purchase)? Spent more than 30min. on site and still couldn’t figure it out.
It only says I have 3.54% interest rate: is it fixed or variable rate? I’m clueless.
Thanks
You can find the rate history of your bond here, listed by issue date:
https://www.treasurydirect.gov/indiv/research/indepth/ibonds/IBondRateChart.pdf
Bought in November 2012 means 0% fixed. You’ll earn 3.54% annualized from May 2021 to October 2021, then 7.12% annualized rate from November 2021 to April 2022.
Thank you.
One other question is does it compound?
I mean I put in $10k back in 2012. Will it earn 7.12% on this initial $10k starting Nov. 2021 or on the amount include all those previous earned interests?
Savings bond interest is accrued monthly and compounds semi-annually. But yes, you’ll earn 7.12% on your whole balance including accrued interest for 6 months. That’s a perk of savings bonds, you don’t have to pay taxes on the interest paid every year like a bank CD, so all your money just keeps compounding. 🙂
How about buying half in October and half in November? I don’t want to guess =)
That’s perfectly fine as well, just remember that if you intend to hold them long-term, then they will also experience the same interest rates sooner or later.
There are differences of opinion on how late in October you can safely make a purchase and have the bond issue date in that same month.
Example: October 31st falls on a Sunday. Some are suggesting you make the purchase on Wednesday, October 27th because the order want be processed until the following business day (Thursday) and the bond issue date will be one business day following that (Friday, October 29th)
Any thoughts?
In my experience, if you enter the purchase order on a business day daytime (I do it early but definitely before 4pm Eastern), the money gets pulled out the next business day AND is technically issued that same next business day. The main thing is to account for weekends and holidays, as you have.
As long as you get it in October, it will be marked as an October 2021 I bond and earn interest from the 1st. So the question is how much interest are you earning now from the cash source? If you’re earning 0.50% APY, then each day is earning somewhere on the order of 14 cents per $10,000. I think Wednesday is a good safe day since it gives an extra day of “who knows, something might happen, website might crash”, but even Monday might be fine if your money is already sitting in an account not earning much interest. The most likely case is probably an emergency comes up and you forget to enter the order completely.
Instead of dealing with the hassle of the bad web site, would purchasing funds in Vanguards tips find achieve the same thing? Or is the share you purchase spread out over a basket of tips bonds and likely not to get you the return you are hoping for?
One of the advantages of savings bonds right now is that you are guaranteed a 0% real yield, which isn’t great but the real yield of TIPS is now -1.60% for a 5-year TIP:
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield
Jonathan,
Thanks so much for all your posts. They have been my guiding light for the past many years…
This time, however, I am somewhat confused…
Why would I want to buy in October when I can buy in November & receive an immediate rate of 7.12% from the get go? It seems as though, buying in October will delay the high rate of 7.12% for 6-months…
(I am ignoring the fixed rate of 0% which will probably be the same in November)
Thanks!
I suppose that I’d rather have 3.54% and then 7.12% guaranteed rather than 7.12% and then ???. The market-based odds are that ??? will be less than 3.54%. 3.54% is also very likely to be better than most other alternatives, so I’m going with the bird in the hand. You may feel differently. I’ll eventually get ??? no matter what.
Won’t you get the ??? (Nov purchase) if you hold past 12 months too? I figure I’ll buy now and then hold until the rate becomes less than I can easily get other places?? Also I was able to setup my account up in 5 min and just put in my act #/routing and had my order confirmation for $10K a few minutes later. Did I get lucky or am I going to get a phone call, etc tomorrow?
Yes, I suppose I’d rather have 3.54 + 7.12 + ??? rather than 7.12 + ??? + ???? 🙂
Thanks – was afraid I might have been missing some piece
So to get the extra 5k you could over pay your taxes? Weird!
Also as I just got off the phone with them, the signature guarantee is random and not required of everyone. FYI. Wait time was less than two minutes and the woman was very helpful.
Just to be clear, is the “last 3 months interest” you lose if you sell before 5 yrs specifically the last 3 calendar months, or the last 3 non-$0 credited interest months? Just checking :/.
I bet there will be a lot of wonks (hand raised) looking at the over payment tax option :). Money is money…..
You lose the last three calendar months of interest.
I had no issues setting up my TreasuryDirect account. It only took a few minutes online. I was surprised that my money was transferred from my linked account and the bond issued the next day!
I never thought about it being a problem to change the linked account. I had planned to close the initial linked account next week. I Linked it to TD for the purchase and transferred the remaining balance to a new online bank.
Does the Form 5512 have to be signed at a branch of the Bank your account is linked to? Or can it be any bank? My current linked account is an online only bank.
I’m pretty sure that form can be signed at any bank offering the Medallion signature guarantee. I’ve used a different bank before.
Do you know if it is possible to buy I bonds of $10k as an individual and then another $10k as a trust even though the trust is in the name of the individual? I’m seeing conflicting information on this.
My understanding is that this is possible if you open a separate TreasuryDirect account for the trust and your trust has its own Tax ID. They seem to track the limits per tax id number.
Thanks for the tip on i bonds. I have a question.
I bought $20k before Nov 1, 2021. I get the 3.54% through April 2022, then 7.12% through Nov 2022. I am clear on that.
If I now buy $20k more in Jan 2022 (new calendar year), how doe that work? For this new $20k buy:
Will it be 3.54% from Jan 2022 through April 2022
Then will it be the 7.12% from April 2022 to Nov 2022
Then to complete a 12 month cycle will it be (unknown % yet) for Nov through Jan 2023?
Thank you for your help
An I bond purchased in January 2022, will receive 7.12% rate for 6 months (Jan through June) and then it will keep changing every six months based on the initial purchase month (July through December, January through June). Right now, you only know the rate for January through June.
What’s the process for getting the money from the bonds you bought, back into a usable form (like transfered to my checking account). I assume you “sell” the bonds somehow?
Yes, you redeem them into a temporary holding account at TreasuryDirect, and then you transfer back to a linked checking account. Partial redemptions of online savings bonds are allowed.
>> The variable inflation-indexed rate for I bonds bought from November 1, 2021 through April 30th, 2021
This should be through April 30, 2022 (not 2021).
Thanks, fixed!
Johnathan,
1 Am I understanding correctly that real (CPI-adjusted) yield on 5 year US TIPS bonds is a good estimator of what the Fixed Rate component of the I Bond?
2 I know nobody even “Experts” can accurate forecast financial markets & inflation. However, it seems to me that is unlikely for the Fixed Rate on I Bonds to exceed 0.00% during calendar 2022, on the 2022-May or 2002-Nov next 6-month cycles. Would you agree? What probability would you estimate the fixed component exceeding 0.00% in 2022-May or 2022-Nov?
3 If it is low probability for the Fixed Rate to exceed 0.00% during calendar 2022, for the individual that has funded a sufficient liquid emergency fund, has an extra $10K+ in investable money, is looking to max the $10K in I Bonds in 2022 anyways, it seems to be a no-brainer to go ahead & purchase the max before month-end 2022-Jan. The rationale would be that this $10K would start earning the relatively higher (relative to “Interest Rate on Cash” alternatives”) I Bond interest, & this $10K could be sooner redeemed if necessary on Jan 1, 2023.
Do you agree with my rationale on maxing out this month in 2022-Jan, or am I missing some concept?
Thanks Jonathan.
Anxiously awaiting Johnathan’s response to! Great questions.
I have money sitting around earning nothing & trying to decide if I should buy my $10k annual treasury limit in ibonds or take advantage of some highly beaten down stocks today!
I agree. I have already put in my order at TreasuryDirect to purchase my max in I-bonds for this week, last week in January.
In my case, I am just reallocating the bonds portion of my portfolio to a higher-yielding but equally safe instrument.
Thank you for your post and the helpful information. As a newbie who recently purchased my first I-bonds last year, I am wondering if there is any possibility to redeem them prior to 12 months of ownership? I realize if they are redeemed prior to 5 years there is a loss of 3 months of interested, but can the original purchase be redeemed prior to 12 months in any way? (thinking perhaps a loss of ALL interest).
I don’t believe so. That is definitely a potential drawback. The best you can do is buy at the end of the month and redeem in 11 months plus a couple days (buy January 31st, redeem on January 1st).
Based upon current data, do you still plan to purchase in January, 2022 or wait until later in the spring?
Thank you for all of your advice.
I am purchasing in late January. If you have the funds available, I believe that gives the highest likely return. However, if you don’t have the funds available, you can always wait a while until the next rate prediction in mid-April.
I recently purchased I – bonds in my name and my wife’s name.
Now I wonder if I should have purchased them in the names of our trusts since the trusts list the beneficiaries etc.
What do you recommend ?
I want to purchase I-bonds now. Am I too late and lazy?
Not too late. Current 7.12% rate will apply to all purchases completed until end of April 2022.
Thanks for the great article. Just so I understand this “fixed rate never changes” part.. say I had an I-Bond that was issued to me in Nov 2007 when fixed rate was 1.2%. Does this mean that on my next 6-month renewal in April 2022 I will get 1.2 (fixed) + 7.12 (composite) = 8.32% interest?
Yes, that sounds right.
Should I purchase I-bonds now or see what the new rate is in April?
I would buy now. No one should sneeze at getting 7% and the sooner you get them, the sooner you can cash them (12 month min holding). The new rate for bonds in May is on track for 6.8% so far with one more month of data due. Chances are small they would raise the fixed rate.
Dying to know if anyone else encountered this: I followed up with my plan to overpay my taxes last year and use the refund money to buy “extra” i bonds over the 10k limit. I earmarked $2k of my tax refund for bonds (you can split how the refund is used). I kept it a round number since I didnt know how they would issue them. I just got in the mail NINE (9) envelopes covering the purchase! The bonds were issued as : $1k, $500, $200, and 6x$50 paper I bonds. lol. Are they expecting me to use these at the store and have small change for purchases? Jeesh. Not sure if I checked some box wrong (process was not as clear as I expected) but I would not do this again. At least I got the paper in hand….
FYI: Process to get my paper bonds took about 4 weeks or so after I filed (electronically).
Sorry may be a noob questions. If I buy 10K worth say around April 20, 2022, Would I get 7.12% for 6months till Oct 2022?. Or, would it adjust to whatever new rate that changes on May 1st, 2022?
Yes, if you buy April 20th, you will get 7.12% (annualized) for 6 months including April, May, June, July, August, and September. Then new rate for October-March, and so on, reseting every 6 months based on your anniversary month thereafter.
I purchased several I bonds through Treasury Direct, and it appears the interest is not posting correctly. Last year I purchased $10,000 on 3/1/2021. The interest should be calculated at .84% for March and April 2021, then 1.77% for April through October 2021 and 3.56% for November through April 2022. The interest posted to my account since my purchase is $232. I calculate it at $561. Any idea why there is such a difference? Thank you
The 6 month windows are based on your specific purchase month. If bought in 3/2021, you get the initial rate for March, April, May, June, July, August. Then the next rate for September-February. Then the next rate for March-August. And so on.
Thank you, but one other question. All of the materials seem to state that you receive the current interest at time of purchase, then the new interest as it changes each six month period at May and November. Using your explanation, I was able to calculate the $232 interest, taking into consideration the 3 month penalty for early. The details in TD are confusing
The rates are decided during May and November using government inflation numbers, but they apply to each individual savings bond based on their purchase month. You will eventually get every rate for 6 months each. I agree, it is confusing.
Thank you!