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All good things must come to an end.
Series I Savings Bonds, aka I bonds, have been paying out a record-setting interest rate in recent months, but time is running out to lock in that rate.
The composite interest rate for the newly fashionable I bonds hit 9.62% in May, an all-time high for the government bond, which was created in 1998 to protect Americans’ savings from inflation. Financial experts often hail the bonds as one of the safest and savviest investments for middle-income Americans, especially during times of high inflation: When the inflation rate rises, so does the interest rate on I bonds.
“You can’t lose money. The composite rate can never go below 0%,” according to I Bond Manifesto, an ode to I bonds co-authored by a cadre of financial planners and Nobel prize-winning economists. “I Bonds will never return less in nominal terms than you invested in them even if the country enters a prolonged period of deflation.”
I bonds do have caveats, of course. They can’t be cashed out within one year of purchase unless there's an emergency. If cashed out within five years, the final three months of interest are lost. The purchase process for I bonds through the Department of the Treasury can also be cumbersome. But for many, a guaranteed payout — that’s currently unrivaled by any stock or savings account — is well worth it.
While the economy is far from entering a prolonged period of deflation (or in other words, negative inflation), inflation has been cooling — albeit mildly. Because of this, the new I bond rate is expected to tick down from the current sky-high one. The Treasury Department will announce the new rate on Nov. 1.
Buying I bonds at 9.62%
The good news: If you’re looking to take advantage of the 9.62% rate, you still have a window to buy I bonds.
In order to earn a full six months worth of interest at an annualized 9.62% rate, you must buy your I bonds and receive a confirmation email by Oct. 28, according to TreasuryDirect.
Because of how interest accrues with I bonds, the exact date of purchase in October is less important.
But meeting the Oct. 28 deadline will ensure your I bonds lock in the 9.62% rate for six months.
“Interest is earned on the last day of each month and is posted to your account on the first day of the following month,” the I Bond Manifesto authors wrote. “So, if you own your I Bonds on the last day of any month, you’ll earn that full month’s interest.”
In other words, it doesn’t matter if you bought your I bonds on Oct. 1 or want to wait until Oct. 28, you will still get a full month’s worth of interest. And after six months, the interest you earn will be added to your bond’s principal value, and your rate will automatically change over to the rate announced on Nov. 1.
The sooner you act, the better. The TreasuryDirect website says that due to high volumes, there's no guarantee that your I bond purchases will be completed before the deadline if your account or purchase requires customer support for issues like identity verification.
What will the new I bond rate be?
The composite rate of an I bond is made up of two rates: a “fixed rate” and a “variable rate.”
Every May and November, the Treasury Department calculates the new composite rate by using the previous six months of inflation data to set the variable rate. It also announces a fixed rate, which has been frozen at zero since May 2020. These rates are then combined to make up an I bond’s overall composite rate.
While there’s no way to confirm in advance what the composite rate will be, there is a way to know what the minimum rate will be before it’s announced by calculating the variable rate.
David Enna, a co-author of I Bond Manifesto and founder of the financial website TIPS Watch (short for Treasury Inflation Protected Securities), has a track record of accurately forecasting I bond rates, including the current 9.62% rate. As Enna recently explained to Money, it’s not about crystal-ball predictions.
“When the inflation report for the last month — either in April or October — comes out,” Enna said, “you can tell what the [variable] rate is gonna be weeks before they announce it.”
September's consumer price index report confirmed that inflation is still hot, but experts estimate the rate offered for I bonds will be roughly 6.48% starting in November.
This story has been updated to reflect that you must complete your I bond purchase and receive confirmation by Oct. 28 to lock in the 9.62% interest rate for six months, as well as September's inflation report.