Understanding the Latest Series I Bonds Interest Rates

The U.S. Department of the Treasury recently announced that Series I bonds will offer a 4.28% annual interest rate from May 1 through October 2024. This rate is linked to inflation and represents a decrease from the 5.27% annual rate offered since November. Current owners of I bonds will also see their rates adjust based on when they purchased the assets, with a six-month timeline for rate changes starting from the original purchase date.

Variable and Fixed-Rate Portions

Series I bonds consist of two parts – a variable and fixed-rate portion. The Treasury adjusts these rates every May and November. The variable rate remains the same for six months after purchase, regardless of when new rates are announced. After the initial six months, the variable rate changes to the next announced rate. On the other hand, the fixed rate stays the same after purchase and can be adjusted or kept the same every May and November.

Following a record 9.62% annual rate in May 2022, millions of investors flocked to I bonds, but rates have since decreased due to cooling inflation. While short-term savers may have better options for cash, long-term investors still find the fixed rate portion of I bonds attractive. This sentiment is shared by certified financial planners who emphasize the stability and tax benefits of I bonds, such as no state or local levies on interest and the ability to defer federal taxes until redemption. However, investors must consider their financial goals and timeline before purchasing Series I bonds, as there are restrictions on accessing the funds within the first year and penalties for early withdrawal within five years.

Individuals can buy Series I bonds online through TreasuryDirect, with a $10,000 per calendar year limit. There are also options to purchase $5,000 in paper I bonds using a federal tax refund. While the fixed rate portion of I bonds may be appealing for long-term investors looking for stable returns and tax advantages, it is crucial to assess individual financial goals and the liquidity needed before investing in these securities.