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Post: Beth Pinsker: U.S. Treasury sweetens the pot on I-bonds by adding a fixed rate

After record-breaking sales of I-bonds in October, the U.S. Treasury is dangling another good deal in front of savers for the next six months. 

Starting Nov. 2, when I-bonds will be available again after site maintenance at TreasuryDirect.gov, the inflation-adjusted annualized rate will be 6.48%, down from 9.62%. But there will also be a 0.4% fixed rate, a bump from zero, where it has been since 2020. The combined rate will be annualized at 6.89%, available through April. 

The fixed rate at the time of purchase will stay with the bond as long as you hold it — up to 30 years — but the inflation adjustment resets every six months in November and May.

You can buy up to $10,000 per individual each calendar year through TreasuryDirect.gov, plus an extra $5,000 in paper bonds if you designate them as a tax refund. You can gift I-bonds to others, and they can receive them if they have their own account and have not gone over their own limit for the year. 

The major caveat is that you are locked into your purchase for one full calendar year. If you cash out between one and five years, you lose the last three months of interest. 

The 9.62% rate for the last six months since May was a record high for I-bonds and it was matched with record buying by Americans starved for yield for their cash. As stocks


and bonds

both plummeted, and rates on banking products like high-yield savings and CDs crept up slowly, I-bonds beat them all for return. 

The Treasury Department says it sold nearly $7 billion in I-bonds in October, with nearly $1 billion coming on the last day to qualify purchases at the top rate. That is more in one day than the sales in the three years from 2018 to 2020.

Do I-bonds beat TIPS? 

The main question for savers looking for safety and yield is: Will I-bonds remain a good deal with the Federal Reserve likely to raise interest rates in both November and December? The Treasury offers another tempting inflation-adjusted investment in TIPS, which can be easier to purchase and have fewer restrictions. 

“The new I-bond fixed rate of 0.40% is a nice increase, but TIPS currently have real yields in the 1.60% range. So TIPS currently have an edge,” says Ken Tumin, founder of DepositAccounts.com

Savers might also look to Treasury bills and CDs, says Jeremy Keil, a financial planner based in Milwaukee.

“If you’re buying an I-bond today, you’re betting that inflation over the next six months is 4.5% or greater. That’s a much higher inflation rate than the bond market is predicting through the five-year break-even inflation rate,” he says. 

If your alternative is banking products rather than Treasury investments, you would be getting a decent offer in comparison.

“The I-bond continues to be a better deal than what’s available from banks, even though you can’t do an exact apple-to-apple comparison. Currently, the highest online savings account yield is 3.50%, and the highest CD yield is 4.75% for a 20-month term,” says Tumin. 

When you should buy in 2023

If you’ve already reached your limit on I-bonds for 2022, your next opportunity to buy for yourself would be in January. 

Keil suggests that you might want to hold off until April to see how the rate landscape looks for the next inflation-adjusted rate change in May. 

“It’s nice to know the full 12-month rate, and for two weeks at the end of April 2023 you’ll know that,” says Keil. 

Even without record-breaking interest rates, there’s still a place for I-bonds as part of your long-term savings strategy. You just have to adjust your expectations. Most previous buyers before the frenzy were in it for the long haul. 

“I-bonds are still a great part of your long-term emergency fund, but at this point there are other alternatives, especially Treasury bills, that are paying a higher interest rate over the next year,” say Keil. 

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