Here’s why it may be better to buy Series I bonds before May, experts say

Even though the annual rate of newly purchased Series I bonds could fall below 5% in May, these assets could still attract long-term investors, experts say.

Investors currently earn 5.27% annual interest on new I Bonds purchased before May 1. Some experts predict the new rate could drop to around 4.27% depending on inflation and other factors.

But it’s still possible to lock in six months of the 5.27% annual rate for the new I Bonds before May 1, assuming you haven’t exceeded the 2024 purchase limit.

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The U.S. Department of the Treasury adjusts I-bond rates – with a floating-rate part and a fixed-rate part – every May and November.

Based on inflation data from the last six months, the variable part will increase from 3.94% to 2.96% in May. The fixed-rate portion is harder to predict, but experts estimate it could stay close to 1.3%.

The 1.3% fixed rate makes I-bonds “very attractive” to long-term investors because the rate remains the same after purchase, said Ken Tumin, founder of DepositAccounts.com, which closely tracks these assets .

In contrast, the variable rate remains the same for six months after purchase, regardless of when the Treasury announces new rates. After that, the variable return moves to the next announced rate.

If you want more I bonds, “it’s probably best to buy before the end of April and lock in that higher rate for six months,” according to David Enna, founder of Tipswatch.com, a website that tracks bonds of the Treasury protected against inflation. securities, or TIPS, and I bond rates.

If you buy I Bonds now, you will receive 5.27% annual interest for six months and the new May rate for the next six months. He suggests buying a few days before April 30.

Enna expects the fixed rate to be 1.2% or 1.3% in May, based on the semiannual average of real yields on 5- and 10-year TIPS.

However, long-term investors could be disappointed if they buy in April and the Treasury announces a higher fixed interest rate in May.

While long-term investors might be interested in the fixed rate of I bonds, short-term investors might have better options for obtaining liquidity elsewhere, experts say.

“They are no longer a win over an online (certificate of deposit) or online savings account,” Tumin said.

As of April 19, the top 1 percent in one-year CDs were paying about 5.5 percent, and the top-performing high-yield savings accounts were paying about 5 percent, according to DepositAccounts.

Experts say short-term investors can also consider U.S. Treasuries or a money market fund.

As of April 19, most Treasuries were yielding well over 5%, and two-year Treasuries were around 5%. Meanwhile, some of the largest money market funds were paying nearly 5.4% as of April 19, according to Crane Data.

“You just don’t know where short-term rates are going,” Enna said. “That’s why I like the idea of ​​locking in a year if you’re considering buying a short-term investment.