Inflation Is Driving up I Bond Rates. Is Now the Time to Buy?
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One of the safest investments offered by the federal government just became a little more attractive.
The rates for inflation-protected Series I Savings Bonds, known as I bonds, have ticked up to 4.26%, up slightly from 4.03%. These rates are in effect for all I bonds purchased through October 2026.
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"The key thing about I bonds is that they are an extremely safe investment, can never go down in value, allow deferral of federal taxes until redemption and have a flexible date for redemption," says David Enna, founder of the financial site TIPS Watch, which tracks I bond rates. "They are a very good investment to use as a safe secondary emergency fund."
I bonds rates are largely based on inflation trends from the previous six months. Reignited inflation in March — the final month used in the Department of Treasury’s rate calculations — pushed the yield up for the bonds.
Back in February, Enna says, it was looking like the new I bonds rate would be much lower because inflation was sitting at a relatively normal 2.4%. Then the Iran war broke out, sending oil prices into a frenzy and kick-starting a chain reaction that caused March's consumer price index to to reach 3.3%.
New I bonds rate, explained
The new 4.26% rate is guaranteed for six months. This is an annualized rate called the composite rate, which is broken into two parts.
The first part is based on the previous six months of inflation, as mentioned.
The second is known as the fixed rate, which stays in place for 30 years from the bond's purchase date. The fixed rate for bonds purchased through October is 0.9%.
"That guarantees a return that will be significantly above inflation," says Ken Tumin, co-founder of the financial site DepositQuest. "Combine that with I bond tax advantages, and the I bonds definitely become a good and safe investment for everyday folks."
Together, these two rates create the composite rate. Every six months over the life of the I bond, the variable rate changes based on developing inflation trends. The fixed rate stays the same for up to three decades, or until redemption. With one part static and one part changing, the money you invest never loses its value.
"Your I bond investment will return 0.9% above inflation for the 30-year term," Enna says. "Could the fixed rate go higher in the future? Yes, definitely, but 0.9% remains an attractive fixed rate."
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Are I bonds worth buying today?
In 2022, I bonds reached an all-time high rate of 9.62%.
The catch is that the rate was driven solely by the inflation at the time. The fixed rate was 0%. While today's new rate isn't as high as it once was, the 30-year fixed rate component makes I bonds an attractive and safe long-term option for anyone worried about inflation.
At 4.26%, I bonds nominally outperform most certificates of deposit (CDs), high-yield savings accounts, and money market accounts, which are generally topping out around 4%.
"Since I bond composite rates will be changing every six months after opening, you can’t do a simple comparison with CDs," Tumin says. "However, the I bond inflation protection, its tax advantages, and its long-term liquidity make [it] superior to CDs and high-yield savings accounts in many ways."
That said, I bonds do come with caveats worth knowing. There's a strict one-year withdrawal restriction; the money can't be touched except in specific emergency scenarios. And if withdrawn within five years, there's a three-month interest penalty — comparable to early withdrawal penalties on certain CDs, which typically withhold three to six months of interest.
I bonds also can only be purchased through TreasuryDirect.gov, with a $10,000 per-year investment maximum — restrictions that savings accounts and CDs don't carry.
Zvi Bodie, an economist and proponent of I bonds, previously told Money that he views I bonds as an inflation-protected savings account.
For those who are worried about liquidity, he said you can use a laddering strategy to work around the restrictions.
For example, instead of locking all of your emergency savings in I bonds at once, start with a third and leave the rest in a regular savings account. That way, you can quickly access a majority of your savings if you need to cover an unexpected expense.
The next year, add another third to I bonds. At that point, your first batch of I bonds will become redeemable, and you'll still have direct access to the remaining third in your savings account. On the third year, transfer the final portion of savings into I bonds, and your emergency savings will be fully protected from inflation, with a majority of it liquid.
“Do it gradually. And gradually is however you want to define it,” Bodie said, “but it means do it so that you are still maintaining some funds that are available, just in case.”