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The Series I bonds will pay annual interest of 4.28% from May 1 through October 2024, the U.S. Department of the Treasury announced Tuesday.
Linked to inflation, the latest bond rate I is down compared to the annual rate of 5.27% offered since November and slightly lower than the 4.3% of May 2023.
Current I bond holders will also see their rates adjust based on when they purchased the assets. There is a six-month window for rate changes, which begins on the original purchase date.
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Despite the drop in rates, the fixed-rate portion of the I bond remains “very attractive” to long-term investors, said Ken Tumin, founder of DepositAccounts.com, which closely tracks these assets.
How Bond Rates Work
Bond rates I have two parts – a variable rate part and a fixed rate part – which the Treasury adjusts every May and November. The history of both rates is here.
Based on inflation, the variable rate remains the same for six months after purchase, regardless of when Treasury announces new rates.
After the first six months, the variable return moves to the next advertised rate. For example, if you purchased I bonds in September of a given year, your rates change each year on March 1 and September 1, according to Treasury.
In comparison, the fixed rate, which is more difficult to predict, remains the same after the purchase. Each May and November, the Treasury can adjust or maintain the fixed rate.
Still “ideal” for long-term investors
Millions of investors rushed into I bonds after the annual rate hit a record 9.62% in May 2022, and rates have since fallen amid slowing inflation.
Currently, short-term savers have better liquidity options. But bonds could still attract long-term investors, according to Jeremy Keil, a Milwaukee-based certified financial planner at Keil Financial Partners.
“The only reason you buy I bonds is the fixed rate,” which is 1.3% for new purchases between May 1 and October, he said.
Long-term savers might also appreciate the tax benefits, Tumin said. There are no state or local levies on the interest and you can defer federal taxes until repaid.
“This is great for storing your emergency fund for the long term,” Keil added.
Of course, you need to consider your goals and timeline before purchasing. One of the disadvantages of I bonds is that you cannot access the money for at least a year and there is a three-month interest penalty if you use the funds within five years.
You can purchase I Bonds online through TreasuryDirect, with a limit of $10,000 per calendar year for individuals. However, there are ways to purchase more, including $5,000 of Paper I Bonds through your federal tax refund.
Frequently Asked Questions About Bonds I
1. What is the interest rate from May 1 to October 31, 2024? 4.28% per year.
2. How long will I receive 4.28%? Six months after purchase.
3. What is the deadline for obtaining 4.28% interest? The bonds must be issued before October 31, 2024. The purchase deadline may be earlier.
4. What are the purchase limits? $10,000 per person each calendar year, plus an additional $5,000 in Paper I Bonds through your federal tax refund.
5. Do I owe income taxes? You will pay federal income taxes on the interest earned, but no state or local taxes.
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