Financial experts are predicting that the annual rate for Series I bonds could drop below 5% in the upcoming month of May. This anticipated decline would be a decrease from the current 5.27% interest rate on existing I bond purchases made prior to May 1. However, it would still be higher than the 4.3% interest rate offered on new I bonds acquired between May 1, 2023, and Oct. 31, 2023. Despite the projected rate decrease, Ken Tumin, the founder and editor of DepositAccounts.com, which closely monitors these investments, believes that I bonds remain a favorable option for long-term investors.
For short-term investors seeking higher-yield options, Treasury bills, money market funds, or some certificates of deposits may be more attractive choices at the moment. The surge in demand for I bonds has been fueled by rising inflation rates, particularly after the annual rate peaked at 9.62% in May 2022. Experts are speculating that the rate for I bonds could dip to approximately 4.27% in the next month.
The U.S. Department of the Treasury regularly adjusts the rates for I bonds in May and November. These adjustments are based on a combination of fixed and variable components. The variable part is revised every six months using the consumer price index as a gauge of inflation. The fixed portion remains the same for investors post-purchase. The current combined yield for I bonds purchased between Nov. 1 and April 30 stands at 5.27%, with a variable rate of 3.94% and a fixed rate of 1.3%.
Financial analysts anticipate that the variable rate for I bonds will decrease from 3.94% to 2.96% in May due to changes in inflation data. The fixed rate adjustment is more challenging to forecast since the Treasury does not disclose its exact formula. David Enna, the founder of Tipswatch.com, suggests that the fixed rate could range from 1.2% to 1.4% in May. By examining the average real yields for 5- and 10-year TIPS, Enna uses this data to predict potential changes in the fixed rate for I bonds. While a shift from 1.3% to 1.4% may not have a significant impact, investors are inclined to favor the higher rate.
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