Update 4/29/22: I Bonds purchased now will count as May purchases and immediately get the 9.62% rate. Purchases no longer gets the 7.12% + 9.62%. Instead you’ll get the 9.62% rate for 6 months and then an unknown rate for 6 months. This is still a good deal to buy either now or in the coming months in order to get the 9.62% rate. If 9.62% isn’t worth your while, wait until September/October time when we have a better feel for the what the following rate will be for the next 6 months and decide then. Any purchases by October 28th will still get 6 months of the 9.62% rate.
Update Thursday 4/28/22: Today is the last day to get in on the 7.12% rate since every purchase settles the next day:
- We’ve explained how you’ll likely do better purchasing in April to lock in the 7.12% and the 9.62% rate, see U.S. Treasury I Bonds FAQ (When To Buy $10,000 I Bonds? 9.62%? And More…) for more information.
- If you buy Thursday 4/28 (until midnight?), it’ll settle Friday 4/29. If you buy Friday it’ll settle Monday 5/2 and immediately get the next rate. You’ll see clearly on the final Purchase Review screen when the official Purchase Date is.
- Even if you don’t yet have a Treasury account, you can likely set one up today and make the purchase today and have it settle Friday 4/29 since most people get automatically approved by the Treasury for an account without delay.
Update 4/12/22: New rate has been set for 9.62%. Wow! Buy in $10,000 before the end of April to lock in the current rate of 7.12% and then get the 9.62% beginning in 6 months. See this follow-up post to learn more: U.S. Treasury I Bonds FAQ (When To Buy $10,000 I Bonds? 9.62%? And More…)
Original Post 10/13/21:
Multiple people have been asking us to write about buying US Treasury Series I Savings Bonds, known as I Bonds. The rate adjusts on these bonds every six months. The current rate for May – October 2021 is 3.54% APY. The rate is set to change in November to 7.12% APY (source). You are limited to buying $10,000 per calendar year per SSN. The rate locks for 6 months from your purchase date and then updates to the new rate for the following 6 months, etc, etc.
You have to lock the money in for a year; after that you can pull the funds out with a 3-month penalty. If you leave the money in for 5 years there is no penalty.
We’ve had the I Bonds rate on our Best High-Yield Savings Account page for quite some time now, though I never focused on it much due to the $10,000 limit. However, given the current climate of low interest rates at regular banks, and the upcoming high interest rate of I Bonds, I’m definitely planning on doing this.
My understanding of the the best approach is to buy $10,000 in I Bonds now before the end of October (always give yourself a few days buffer). Then buy another $10,000 sometime between January 1, 2022 and April 30, 2022. This way you’ll end up with $20,000 earning the 7.12% rate.
- Your 2021 $10k will earn 3.54% APY for 6 months and 7.12% APY for the other 6 months. Even if you don’t want to leave the funds there for 5 years (when you can withdraw penalty-free), you can pull the funds out in January 2023 and you’ll lose the interest from October, November, December 2022. So you’ll end up getting like 4-5% APY on the 15 months you had the bonds.
- Your 2022 $10k will earn 7.12% APY for 6 months and an undisclosed amount for the last six months. Worst case scenario, if the interest rate is 0% for the second part of 2022, you can pull your money out after 12 months, and you’ll have earned around 3.6% APY on the 12 months.
If you don’t buy until after November 1st, you can still get your $10,000 in for 2021. However, we don’t know what the second 6 months will be – it’s all tied to inflation rates. Others might prefer to wait until after November 1st thinking that the May 2022 rate will be higher than 3.54%, but you run the risk of the rate going down as low as 0%. Personally, I plan to buy now in October and lock in the 3.54% rate given that is already a high rate.
Some other facts to know about I Bonds:
- The total maturity of I Bonds is 30 years.
- You only pay federal tax on the interest. There is no state or local taxes. Even the federal taxes can be deferred until the bond matures in 30 years. (You might be exempt from federal taxes if the funds are used for certain higher education expenses.)
- Best time to buy I Bonds is at the end of the month since interest is paid as if you purchased from the 1st of the month, regardless of when you buy. E.g. if you buy on October 31th, you’ll get interest as if you bought on October 1st. Never leave it until the last minute since it can sometimes take some time to get the account set up properly.
- As mentioned, there is a $10,000 limit in online I Bonds purchases. You can also buy another $5,000 in paper I Bonds by getting your tax refund in the form of paper I Bonds. That increases your total to $15,000 per year. (There is a method to convert the paper bonds to become electronic and pool with your online balance.) I’d be interested in overpaying on my taxes in order to get the additional $5,000 in paper I Bonds at the 7.12% rate as well before the rate changes on April 30, 2022. Important Note: if you extend your tax return, then I assume you’ll get the May – October 2022 rate which will likely be less favorable.
- Spouses can each do this separately: a couple filing jointly can actually lock in $45,000 at the 7.12% rate as each can get $20,000, plus $5,000 in paper I Bonds on their shared tax return.
- It is possible for a couple to lock in the current rate for the future by using the gifting option, more details in this post.
- Fund your I Bonds with an ACH pull. Be sure to link a bank account that you plan on having for the long term since it’s a pain to deal with switching.
- You can open a second TreasuryDirect account for your business with its separate business name and EIN. This allow you to purchase an additional $10,000 in I Bonds each calendar year.
- Buy I Bonds by opening an account with Treasury Direct. You can also go to the TreasuryDirect.gov home page and click Open Account on the right-hand side. Once in your Treasury Direct account, go to the Buy Direct tab at the top of the page, then choose the Bonds ‘Series I’ option.
Feel free to add any additional information or corrections in the comments below.
Hat tip to readers Betty and SS
- U.S. Treasury I Bonds FAQ (When To Buy $10,000 I Bonds, April or May? And More…)
- Gifting US Treasury Bonds To Lock In Current Rates Beyond $10,000 Limit (I Bonds)
- Pondering US Treasury Series EE Bonds (3.5% APY Return With 20 Year Lockup)