Update 10/25/22: The new rate for November will be 6.48%. You can still buy before the end of October to lock in 6 months at the 9.62% rate. We discussed the new 6.48% rate more in this dedicated post.
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)
Hey all, appreciate all of the discussion here in the comments. Just wanted to say that most of the questions asked are addressed in the linked posts
For I Bonds. February is the fifth month of a six-month string that will determine the I Bond’s new inflation-adjusted variable rate. Through the five months, inflation has run at 1.36%, which would translate to a variable rate of 2.72%. One month remains, so it looks like the new variable rate should fall into a range of about 3.2% to 3.5%, down substantially from the current 6.48%. The I Bond’s fixed rate will also be reset May 1, but the outlook for that reset is high uncertain, given the volatility of real yields over the last week. – Source TIpswatch.
I saw somewhere else that the latest figures for CPI came to around 6%. Why is the rate that you mentioned less than half of that?
6% is the year-over-year rate of inflation. The I Bond rate is determined by the monthly rate of inflation for each month from October to March and then multiplied by 2 (annualized).
so from May, 2023 onward.. the rate should be at least 6%?
Probably not. Using the month over month numbers, since October, inflation has been 1.36% which would translate to a 2.72% rate. There’s still one month to go, so I suspect it will be less than 4%. See my explanation of the calculation here. https://www.doctorofcredit.com/u-s-treasury-i-bonds-faq-when-to-buy-10000-i-bonds-6-48-9-62-and-more/#comment-1576753
So that implies that inflation is slowing down a lot. Why is the Fed still expected to raise interest rates a lot more?
We don’t know if they will raise interest rates a lot more. They may only raise them a quarter, or, pause (because of the banking problems). They can either tackle the banking problem or the inflation problem. I think they are ill-equipped to do either anyways.
arihalli will there be anarchy next in the economy or a depression? What do you think will happen this year and next year?
Cheryl, they will do what they always do, they’ll print money to solve the problem. JMO
arihalli won’t that make inflation even worse?
YUP, but thats how they solve monetary problems.
I should have been more clear. I meant before the banks failed recently there was talk that the Fed would raise rates over 6%. I am asking why was that the case if the inflation rate has slowed down.
In theory, the central bank has to raise interest rates to equal or greater than the rate of inflation to control inflation. Inflation is already trending down, so there is some debate whether interest rates need to be raised any more. Further hikes could trigger higher unemployment and a recession.
How are taxes reported on I-bond? I purchased some I-bond last year, but haven’t received 1099 INT yet, not sure whether it was lost in the mailing process or whether it wasn’t issued…
I bond interest is tax-deferred until redeemed (up to 30 years, the bond duration).
You won’t get a form till you redeem them.
However, you can pay taxes each year on them (report them manually and keep track) or defer to when you redeem the bond. All info can be found here https://www.treasurydirect.gov/savings-bonds/tax-information-ee-i-bonds/
Lots more info on paying interest annually here, too:
I-Bonds Tax Treatment – Optional: Report Interest Every Year
Similar to Doctor of Credit, there is much value in the Comments, too.
Ryan Goldstein Penny mangorunner Thanks so much guys! Really appreciate it!
Don’t do it. Defeats one of the main advantages to i bonds.
January inflation came in pretty hot at 0.8 so back up to a 1.6% interest rate + any fixed rate with two months of reporting left to go. https://tipswatch.com/tracking-inflation-and-i-bonds/
i don’t know how it’s calculated.. so based on that what will be the next projected rate if you were to guess? gli
Unknown two month’s inflation results. right now it is 1.6% + a potential fixed rate of ? We shall know in April after that CPI hits. Could be anywhere from 1.5% to 4%
I’ll post this comment from Marc because it is as good as any: “If we extrapolate the next two months at the same 0.8%, that would put the May 1 annualized inflation rate for I Bonds at 4.8% (2.4%x2). That probably the high end of the range.
– If it’s half that at 0.4% each, it would be 3.2% (1.6%x2).
– if it’s one quarter of that, it would be 2.4% (1.2%x2).
Using the middle of those three scenarios, the one year annualized rate for buying an I Bond before May 1 would be 5.045% ((6.89%+3.2%)/2).”
Sunshine, Keep an eye on David Enna’s column. He is the best-of-the-best, when it comes to I-bonds:
I have read some comments where people say they’re waiting until April to see what the rate will be for the next six months from May onward.. but wouldn’t it be better to invest the 10k now to get the 6.82% and get the 12 month mandatory holding time over with sooner?
just curious on thoughts
Assuming inflation continues to trend downward, the interest earned on I Bonds would not be competitive. $10k would earn 6.89% the first 6 months, and only the fixed rate (.4%) the second 6 months. That would be about 3.6% interest by my math. Several good high yield savings accounts are paying ~4.25%, and we are starting to see 5% CDs in the 15-18 month range. If inflation creeps upward in the next 3 months, I Bonds might have a chance to outperform, but the Fed would probably continue to raise rates pushing HYSA and CDs rates higher. That’s my 2 cents.
Agree with all you say.
I am still ‘interested’ in the IBOND, however.
1) I don’t trust the gov’t stats that inflation is going down this fast.
2) More significantly, if there is powerful damage to the economy, d/t the interest rate jumps, then i BELIEVE, we can EXPECT to see the Fed reverse course , and start to QE (or print money) into the economy to save it. They MAY not. But powerful political pressure will be upon them to reverse. And if they do, then they will re-charge inflation into the economy.
3) The Fed appears to be ending inflation , on the backs of ‘labor’. And i don’t think it works. Labor needs $ to purchase consumables.
4) Until such time, as Congress ends reckless spending and borrowing, and attempts to provide REAL growth into the economy, i think inflation will increase.
All of these things are true but remember that the Ibond rate is compared to last year’s monthly numbers etc… it has to inflate even more than the really high rate from last December and January etc… Inflation is still going up – just not a much as last year’s comparable month.. that’s how this is calculated.
Happy CPI Day!
In line with consensus estimate, -0.31% for December, 6.5% for the year, I-bond variable rate now calculates slightly negative but kneecapped at 0% with three months to go…
Good exit point for those who are in at the higher rates now – to exit with 3 months of 0% interest lost (I mean opportunity cost but..) Was a good run.
For those of ya’ll who specified last year you pre-paid additional taxes and to use the refund to buy additional bonds and used OLT to file taxes, I searched the comments and noticed some people had issues (e.g. amount wasn’t right), was it resolved at the end of the day? Currently looking at options on filing my taxes before I do the prepaid option.
Last year, I reported FreetaxUSA did not support ibonds purchases with refunds
Chuck William Charles Can you bump this post? I guess with 6.82% it’s still worth it compared to ~4% on 1 mo t-bills or 4.4% on sallie mae CDs.
I think I’m going to wait a few months to see how the second part of the 6-months will play out before buying as the 6.89 is only for the first 6 months.
Just wondering, is the rate likely to go up in 6 months?
The next rate adjustment is May 1. Given the recent data, the rate is likely to go down. By how much is still the question. By 4/15, the inflationary rate should be calculable. The fixed rate is arbitrary, no one knows how that is figured.
Thanks. If it’s likely to go down, it seems to make sense to buy now for the year, right?
ixo You’ll be locked in for a year, so 6.48% for the first 6 months, and some unknown number for the second 6 months which could be better or worse than prevailing savings account rates. You’ve got until the end of April to lock in the current rate, but we’ll have a rough idea of the next rate by then. I’d wait IMHO.
Worth the read:
“I Bonds: A not-so-simple buying guide for 2023”
Looks like somethin happened to the latest thread. Cant access it any more
404 error: Page not found
It seems that you got lost, but we are here to help
Heads up, the Treasury Direct website is having all kinds of problems apparently due to high demand (and the fact that it must be running on a 20 year old PC in the corner??). Getting all kinds of errors just trying to login. Hopefully the load lightens up at some point in the next 24 hours.
“We are currently experiencing unprecedented requests for new accounts and purchases of I Bonds. Due to these volumes, we cannot guarantee customers will be able to complete a purchase by the October 28th deadline for the current rate. Our agents are working to help customers who need assistance as quickly as possible.”
and this.. is why we do not wait until the end of the month of interest rate lock-in deadline days to complete our transactions folks. Good heads up!
If a family member gifts me an i-bond before Oct 31 2022, what rate do I lock in?
The rate was determined when it was issued not the gifting date.
There’s no lock in rate. It changes every six months.
Original Jack Got it, but doesn’t it accrue interest even if its its in a holding period? If so, what would it be ?
It should be earning the same as if bought into an account or in a gift box.
9.62% for six months