All good things come to an end.
Series I Savings Bonds aka I’m readinghave been paying a record high 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, a historic record for the government bond, created in 1998 to protect American savings from inflation. Financial experts often hail bonds as one of the safest and wisest investments for middle-income Americans, especially in times of crisis. high inflation: When the inflation rate increases, the interest rate on I-bonds also increases.
“You can’t lose money. The composite rate can never go below 0%,” according to I Bond Manifesto, an ode to bonds I co-written by a group of Nobel Prize-winning financial planners and economists. “I bonds will never yield less in nominal terms than what you have invested in them, even if the country enters an extended period of deflation.”
I bonds have caveats, of course. They cannot be redeemed within one year of purchase, unless there is a emergency. If it is cashed within five years, the last three months of interest are lost. The process of buying bonds I through the Treasury Department can also be cumbersome. But for many, a guaranteed payout – which is currently unmatched by any stock or savings account – is worth it.
While the economy is far from entering a prolonged period of deflation (i.e. negative inflation), inflation has cooled – albeit moderately. For this reason, the new I bond rate should fall from the currently very high rate. The Treasury Department will announce the new rate on November 1.
Buy 9.62% I Bonds
The good news: if you’re looking to take advantage of the 9.62% rate, you still have a window to buy bonds.
Because of the way interest accrues with I bonds, the exact date of purchase in October is less important.
But meeting the October 28 deadline will ensure that your I bonds lock in the 9.62% rate for six months.
“Interest is earned on the last day of each month and posted to your account on the first day of the following month”, 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 October 1 or want to wait until October 28, you’ll still get a full month’s worth of interest. And after six months, the interest you earn will be added to the principal value of your bond and your rate will automatically change to the rate announced on November 1.
The sooner you act, the better. The TreasuryDirect website states that due to high volumes, there is no guarantee that your I Bond purchases will be completed by the deadline if your account or purchase requires customer assistance for issues such as verification of identify.
What will the new I Bond rate be?
The composite rate of an I-bond is composed of two tariffs: a “fixed rate” and a “variable rate”.
Every May and November, the Treasury Department calculates the new composite rate using inflation data from the previous six months to set the floating rate. It also announces a fixed rate, which has been frozen at zero since May 2020. These rates are then combined to form the overall composite rate for an I-bond.
Although there is no way to confirm in advance what the composite rate will be, there is a way to find out what minimum rate will be before it is announced by calculating the variable rate.
David Enna, co-author of I Bond Manifesto and founder of the financial site TIPS Watch (short for Treasury Inflation Protected Securities), has a proven track record of accurately predicting I bond rates, including the current rate of 9.62%. Like Enna recently explained to Moneythese are not crystal ball predictions.
“When last month’s inflation report – either April or October – comes out,” Enna said, “you can tell what [variable] the rate is going to take weeks before they announce it.
Right now, we are only one month away from inflation data: September. The Department of Labor releases the final piece of the puzzle on October 13, and this can be used to estimate the next I Bond rate before it is announced on November 1.
Based on currently available inflation data, the compound rate for I bonds will likely be around 6% assuming the fixed rate remains in place. That’s a very high rate for I bonds compared to pre-pandemic years, but we’ll get a much clearer picture when the Department of Labor releases the inflation rate for September.
This story has been updated to indicate that you must complete your I bond purchase and receive confirmation by October 28 to lock in the 9.62% interest rate for six months.