By David Enna, Tipswatch.com
With the U.S. government on indefinite shutdown and the Treasury market showing signs of unease, the November 1 rate reset for the U.S. Series I Savings Bond is looking mighty unpredictable. It’s reasonable to ask: Will they call the whole thing off?
Time will tell. Naturally, I would love to see a resolution to this shutdown crisis in the next week, well before crucial release of the September inflation report on October 15 at 8:30 a.m. If we get that report before the end of October, a lot — but maybe not all — of the unpredictability will fade away.
The basics
The Series I Savings Bond is a unique inflation-linked U.S. Treasury issue that earns interest based on combining a fixed rate and an inflation rate. All these rates will change November 1 for purchases between November 2025 and April 2026:
- The I Bond’s current composite rate is 3.98%, annualized, for a full six months for any bond purchased through October.
- The fixed rate will never change. Purchases through October will have a fixed rate of 1.10% for the 30-year life of the I Bond.
- The inflation-adjusted rate (often called the variable rate) changes each six months to reflect the running rate of inflation. That rate is currently set at 2.86% annualized. It will adjust again November 1. Each new variable rate applies to all I Bonds, no matter when they were purchased.
The problem: Variable rate
Without the release of the September inflation report, there is no way the Treasury can accurately set the I Bond’s new variable rate or composite rate in any traditional way. The same is true for the updated composite rates for all I Bonds ever issued. We need that September inflation report.
The new variable rate will be based on inflation for the six months of April to September 2025, which through five months has totaled 1.31%. That translates to a variable rate of 2.62%. If non-seasonally adjusted inflation for September runs at 0.3% (seems possible), the six-month inflation number becomes 1.61% and the variable rate rises to 3.22%, higher than the current 2.86%.
Without the September number, this calculation becomes impossible. So what will the Treasury do on November 1 if the shutdown continues? Regular reader and commenter Patrick found a potential answer in the Code of Federal Regulations.
If the CPI-U for a particular month is not reported by the last day of the following month, we will announce an index number based on the last 12-month change in the CPI-U available. Any calculations of our payment obligations on the inflation-indexed savings bonds that rely on that month’s CPI-U will be based on the index number that we have announced.
The I Bond regulations don’t give any further information on the process or formula, but inflation analyst Michael Ashton wrote about this in a September 2023 article on TIPS titled: What Happens if CPI Isn’t Released?
Title 31 of the Code of Federal Regulations spells out what would happen if the BLS didn’t report a CPI by the end of October. In a nutshell, the Treasury would use the August CPI index, inflated by the decompounded year-over-year inflation rate from August 2022-August 2023.
Today’s relevant calculation would be for inflation from August 2024 to August 2025. And look out, here comes the formula:
I find this to be gibberish (I’m just a journalist) but Tipswatch reader D did post an attempt at the calculation:
September 2025 = August 2025 * (August 2025 / August 2024)^(1/12)
= 323.976 * (323.976/314.796)^(1/12) = 324.753
If the fabricated September number ends up being 324.753, you get non-seasonally adjusted inflation of 0.24% for September, a six-month inflation rate of 1.55% and a new variable rate of 3.10%. My guess is that could be slightly underestimating current inflation, but we won’t know until the true September inflation report is issued.
One thing remains unclear: Once it has the correct number, would the Treasury immediately update the composite rates for all I Bonds ever issued? This isn’t a huge factor in the short run, since I Bonds assign interest at the end of each month. Any redemption in October would get an accurate payment based on the September total. But I would hope the composite rates would be updated to be accurate.
Another problem: The fixed rate
Now we have a quandary that has nothing to do with the government shutdown: What will be the I Bond’s next fixed rate? This is important to investors because the fixed rate is permanent and creates the “real yield” — the yield above inflation — for the I Bond.
The Treasury has no announced formula for setting the I Bond’s fixed rate, meaning there is no calculation required by law or regulation enforcing the process. It is up to a decision by Treasury officials. However, I Bond watchers have settled on a forecasting tool that seems to work: Apply a ratio of 0.65 to the average 5-year TIPS real yield over the preceding six months. This formula has worked without fail at least since 2017.
With less than a month to go, I looked at 5-year real yield data from the date of the last reset on May 1, 2025, to the close of Oct, 3, 2025. Looking at just that data, the forecast is for a new fixed rate of 1.00% at the reset.
I Bond fixed rates are always set to the tenth decimal point, so that means the projection has to be rounded. If you look at the top of the chart, you can see the 0.65 ratio results in 0.9539%, a razor-thin margin to round to 1.00%. So at this point, with 18 market days remaining, the fixed rate would “likely” be 1.00%.
But what if the 5-year real yield continued at the current level — 1.34% — for those 18 market days? If that happened, the 0.65 ratio results in 0.9421% and rounds down to a fixed rate of 0.90%. Again, this is a razor-thin margin.
My “guess” is that we are heading toward a fixed rate of 0.90% but that won’t happen if real yields begin to climb for the next few weeks. We have already seen the Treasury’s estimate of the 5-year real yield climb from 1.17% on Sept. 16 to 1.34% at Friday’s close. That could be caused by unease over future Federal Reserve rate cutting or the government shutdown causing a distaste for U.S. Treasury investments, or both.
Whatever happens, I feel confident the Treasury will set the fixed rate at either 0.90% or 1.00% at the November reset, as long as it continues following practices of the last decade.
What’s the strategy?
Will the Treasury call the whole thing off? No. It looks like it has a backup plan, even if it is a lousy backup plan.
My thinking: I Bond investors who haven’t purchased their full allocation ($10,000 per person per calendar year) should consider making a purchase before the end of October — I’d suggest Oct. 28 to give a margin of safety. An I Bond purchase late in the month earns a full month of interest. But don’t cut this too close to Oct. 31.
Buying in October locks in the current fixed rate of 1.10%, which is likely to go lower for purchases after November 1. It also locks in the current composite rate of 3.98% for a full six months, and then a potentially higher composite rate in the next six months. That sort of yield should be competitive with T-bills if the Fed continues reducing interest rates this year and next.
More aggressive I Bond investors could also look to bypass the purchase cap by making “gift box” transactions in October, which require a trusted partner. More on this. Additional purchases can also be made through trusts or business-owner strategies.
Is a fixed rate of 0.9% to 1.10% still attractive? I say yes, if you consider I Bonds to be a secondary store of emergency cash, always adjusting higher for inflation. Hold for five years and then redeem when you need the money.
• Confused by I Bonds? Read my Q&A on I Bonds
• Let’s ‘try’ to clarify how an I Bond’s interest is calculated
• Inflation and I Bonds: Track the variable rate changes
• I Bonds: Here’s a simple way to track current value
• I Bond Manifesto: How this investment can work as an emergency fund
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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.
