New I Bond rates won't be tantalizing but they could be decent (2024)

Inflation isn't as scorching hot as it was back in 2021 and 2022, thankfully, but it hasn't cooled down enough to take the spark out of I Bonds.

On May 1, a new rate for Series I Savings Bonds will be announced by the U.S. Treasury's Bureau of Fiscal Service. We could, based on some estimates, end up looking at an annualized rate of around 4.28% that would apply for a six-month stretch, based on when the bond was issued, for I Bonds bought from May through October.

We are talking about a lower rate than what I Bonds had in late 2023 and early this year. The combined rate for I Bonds issued any time from last November through April was 5.27%. That rate applies only to the first six months after the bond was issued.

Last-minute savers who are able to buy I Bonds before late April — and have them issued in April — would see a 5.27% annualized rate for six months but then expect to see a lower inflation adjusted rate. See TreasuryDirect.gov to buy I Bonds online. Typically, you cannot wait until the very last minute, such as April 30, and receive an April issue date.

New rates for savings bonds are set each May 1 and Nov. 1.

The upswing in inflation in since the COVID-19 pandemic has put a spotlight on I Bonds and upcoming shifts in interest rates.

Based on the most recent inflation figures and how rates are calculated, the new rate for I Bonds could be 4.28%, according to Ken Tumin, a senior industry analyst at LendingTree. Tumin said inflation-adjusted rate that is announced May 1 can be expected to be 2.96% on an annualized basis. That rate is used as part of the math to calculate the annualized rate.

The inflation rate is on top of the fixed rate for all I Bonds, so it's an important number for current and future savers. The interest rate on I Bonds can change every six months after your initial purchase of the bond, based on inflation. If inflation runs hotter, the rate can go up. If inflation cools off, the rate can go down.

The fixed rate portion of an I Bond remains with the life of the bond. The fixed rate is 1.3% for I Bonds issued from November 2023 through April.

We won't know what the fixed rate will be for I Bonds issued from May through October until Treasury announces that rate on May 1. If it remained at 1.3%, though, I Bonds sold during that timeframe would have a combined rate of 4.28% — not as headline enticing as earlier bonds but still far better than keeping money in an everyday savings account or many lower-rate certificates of deposit.

Tumin said he'd expect the fixed rate to remain about the same or increase slightly for I Bonds issued from May through October.

The fixed rate is a key component of any I Bond, and Treasury can tinker with the fixed rates for newly issued I Bonds. I Bonds issued back in 2021 and most of 2022, for example, had a fixed rate of 0%.

By contrast, I Bonds issued from May 2000 through October 2000 have a fixed rate of 3.6% that remains the same for the 30-year life of the bonds.

No, we are not talking about anything close to the mind-blowing annualized rate of 9.62% that led to an onslaught of I Bond sales from May 2022 through October 2022. Those buyers began seeing new, lower inflation-based rates six months after the purchase of those I Bonds.

Many times, I Bond savers who rushed to buy in 2021 or 2022 wonder if they should dump their I Bonds now. The answer depends a great deal on what you plan to do with the money afterward and how prepared you are to take a federal income tax hit.

The interest that your savings bonds earn is subject to federal income tax, but not state or local income tax. You'd owe tax when you sold the bonds.

You can opt to report each year's earnings on your taxes, but most people wait to report all the earnings when they get the money for the bond after cashing it.

Complex rules apply to savings bonds issued after 1989 but some families also may not have to pay any tax on the earnings if they use the money received after cashing these bonds for qualified higher education expenses. See IRS Form 8815. On 2023 returns, your modified adjusted gross income had to have been less than $106,850 if single, head of household, or qualifying surviving spouse; or $167,800 if married filing jointly, to qualify for this education-related tax break.

Any time you sell I Bonds, you want to take a careful look at what's the fixed rate on the I Bonds you're considering selling. Clearly, it's not bad to hold onto I Bonds you bought many years ago that continue to have a fixed rate of 3% to 3.6%.

How much interest you'd get on your I Bonds will vary significantly since fixed rates can be all over the map, depending on when you bought your I Bonds.

And you need to ask: How else might I invest the money? A savings bond is considered a fairly low-risk option. You might compare the yield on I Bonds with what you'd get on certificates of deposit. CD rates can vary. Some are high but others can be fairly low if you don't shop around.

The highest 12-month nationally available CD is now 5.6% from online Northern Bank Direct with a $500 minimum, according to Tumin. Some local credit unions are offering rates on one-year certificates that range from 4.25% to 4.98%.

For those interested in short-term savings, Tumin said, you can earn more if you lock in a high rate with a promotional one-year CD. Again, you'd want to make sure you're getting a higher rate on that CD.

The national average yield on a one-year CD was 1.98% in late April, according to Bankrate.com. That's up from 1.69% a year ago. The highest one-year CD in the Bankrate.com survey is 5.36% though CIBC Bank. The minimum deposit is $1,000.

"But I Bonds can still be a good deal for long-term savings," Tumin said.

One-size-fits-all answers don't apply to whether you keep or sell your I Bonds.

Savers who buy I Bonds cannot redeem, or cash in, those bonds for the first 12 months after purchase.

Some exceptions are made when there are natural disasters. In February, for example, the Bureau of Fiscal Service announced that the one-year minimum holding period was being waived for those in Michigan who were impacted by the severe storms, flooding and tornadoes that hit in August 2023. These bond holders could call Treasury Retail Security Services at 844-284-2676 and briefly explaining the circ*mstances, or by submitting FS Form 5512, available at www.treasurydirect.gov, to the address in the form. Bond owners should write "DISASTER" on the envelope and at the top of the form’s first page.

I Bonds held less than five years are subject to a three-month interest penalty. You'd lose the most recent three months of interest.

Contactpersonal finance columnist Susan Tompor:stompor@freepress.com.Follow her on X (Twitter)@tompor.

New I Bond rates won't be tantalizing but they could be decent (2024)

FAQs

New I Bond rates won't be tantalizing but they could be decent? ›

Based on the most recent inflation figures and how rates are calculated, the new rate for I Bonds could be 4.28%, according to Ken Tumin, a senior industry analyst at LendingTree. Tumin said inflation-adjusted rate that is announced May 1 can be expected to be 2.96% on an annualized basis.

What will the next I bond rate be? ›

Treasury Department announces new Series I bond rate of 4.28% for the next six months. Series I bonds, an inflation-protected and nearly risk-free asset, will pay 4.28% through October 2024, the U.S. Department of the Treasury announced Tuesday. The latest I bond rate is down from the 5.27% yield offered since November ...

What is the I bond rate for May 2024? ›

The May I Bond composite rate is 4.28% (US Treasury) which is 2.14% earned over 6 months.

Are I bonds a good investment in 2024? ›

I bonds issued from May 1, 2024, to Oct. 31, 2024, have a composite rate of 4.28%. That includes a 1.30% fixed rate and a 1.48% inflation rate. Because the U.S. government backs I bonds, they're considered relatively safe investments.

Is now a good time to buy I bonds? ›

If you buy I bonds now, you'll receive 5.27% annual interest for six months and the new May rate for the following six months. He suggests buying a few days before April 30. Enna expects the fixed rate will be 1.2% or 1.3% in May, based on the half-year average of real yields for 5- and 10-year TIPS.

What is the downside of an I bond? ›

Key Points. Pros: I bonds come with a high interest rate during inflationary periods, they're low-risk, and they help protect against inflation. Cons: Rates are variable, there's a lockup period and early withdrawal penalty, and there's a limit to how much you can invest.

What is a better investment than I bonds? ›

Bottom line. If inflation and investment safety are your chief concerns — TIPS and I-bonds deliver both. TIPS offer greater liquidity and the higher yearly limit allows you to stash far more cash in TIPS than I-bonds. If you're saving for education, I-bonds may be the way to go.

What will the new I bond rate be in May? ›

May 1, 2024. Series EE savings bonds issued May 2024 through October 2024 will earn an annual fixed rate of 2.70% and Series I savings bonds will earn a composite rate of 4.28%, a portion of which is indexed to inflation every six months. The EE bond fixed rate applies to a bond's 20-year original maturity.

How long should you hold series I bonds? ›

Can I cash it in before 30 years? You can cash in (redeem) your I bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest. For example, if you cash in the bond after 18 months, you get the first 15 months of interest.

What day of the month do I bonds pay interest? ›

§ 359.16 When does interest accrue on Series I savings bonds? (a) Interest, if any, accrues on the first day of each month; that is, we add the interest earned on a bond during any given month to its value at the beginning of the following month.

Can I bond lose value? ›

You can count on a Series I bond to hold its value; that is, the bond's redemption value will not decline.

How much is a $100 savings bond worth after 20 years? ›

How to get the most value from your savings bonds
Face ValuePurchase Amount20-Year Value (Purchased May 2000)
$50 Bond$100$109.52
$100 Bond$200$219.04
$500 Bond$400$547.60
$1,000 Bond$800$1,095.20

Do you pay taxes on I bonds? ›

The interest earned by purchasing and holding savings bonds is subject to federal tax at the time the bonds are redeemed. However, interest earned on savings bonds is not taxable at the state or local level.

When's the best time to buy bonds? ›

Investing in bonds when interest rates have peaked can yield higher returns. However, rising interest rates reward bond investors who reinvest their principal over time. It's hard to time the bond market. If your goal for investing in bonds is to reduce portfolio risk and volatility, it's best not to wait.

Are I bonds worth it long term? ›

If you hold the bond for five years or more, you won't lose any interest. I bonds can earn interest for 30 years unless you cash them out before then.

Can I buy $10,000 worth of I bonds every year? ›

Yes, you can purchase up to $10,000 in electronic I bonds each calendar year. You can also buy an additional $5,000 in paper I bonds using your federal tax return.

When should I cash out my I bonds? ›

You can get your cash for an EE or I savings bond any time after you have owned it for 1 year. However, the longer you hold the bond, the more it earns for you (for up to 30 years for an EE or I bond). Also, if you cash in the bond in less than 5 years, you lose the last 3 months of interest.

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