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Update: A Closer Look at I-Bond Rates

Update: A Closer Look at I-Bond Rates

November 28, 2022
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Be sure to take a look at last month’s article which explains the very important details of what I-bonds are, their features and limitations, and how to purchase them. This month’s article we’ll discuss the update to the 6-month rate and whether it still makes sense for your investment portfolio.

The US Department of the Treasury announced they sold a record $979 million I-bonds on Friday October 28th as investors rushed to beat the November 1st deadline. Unfortunately, if you were one of the approximately 70,000 people that opened a TreasuryDirect account in the last few days of October, you likely faced technical issues as their 20-year-old system was overloaded. Hopefully this will prompt them to make some much needed updates!

I-bond rates fell from historic levels this month. As explained in last month’s article, there are 2 components that make up the interest rate: a fixed rate and an inflation rate. The inflation rate has now changed from 9.62% to 6.48%. Although this change may be a disappointment, it’s still the third highest inflation rate since I-bonds were first introduced in 1998.

The real noteworthy news though is that the Treasury increased its fixed rate from 0% to 0.40%, which last peaked in May 2019 at 0.50%. You’re probably thinking what’s so noteworthy about a 0.40% fixed rate increase? Well, that fixed rate, as the name suggests, remains fixed for as long as you hold onto the I-bonds (max term of 30 years). Why does that matter? Because the inflation rate which is variable can at times offer I-bond investors no return. This was the case for those who held onto them in 2009 and 2015 when inflation was near flat. So although the inflation rate was 0% during those years, if the current I-bond fixed rate of 0.40% was available back then, you made at least a 0.40% return during those years. While the current 0.40% might seem laughable, remember it wasn’t too long ago when CDs and saving accounts were paying even half that. 

The total composite rate therefore for I-bonds purchased from November 1, 2022 until April 30, 2023 will be 6.89% annualized. Regardless of the decrease in the annualized rate from 9.62% to 6.89%, it’s still a very competitive rate when compared to other conservative alternatives- it still represents one of the best rates you can find on any essentially risk-free investment.

Regulations make this a do-it-yourself only investment and can only be bought and held electronically on the TreasuryDirect government website. Keep in mind when it comes to investing, diversification is a very important component of building and maintaining wealth. These I-bonds should only reflect a small portion of your overall asset allocation.

Please click here to visit our detailed step-by-step guide on how to get set up with I-bonds.