Here's What I Bonds Will Now Be Paying Through October

Investing money you don't need for near-term bills is a great way to grow it into a larger sum over time. And if you're not looking to buy stocks in your brokerage account -- say, because you don't want to take on the risk -- then you may be interested in putting your money into I bonds instead.

I bonds are government-backed bonds whose interest rates are tied to inflation. The rate on I bonds changes every six months, so the rate you start out with won't necessarily be the rate you continue to get for as long as you hold those bonds. 

Meanwhile, because inflation levels have been dropping, starting May 1 through Oct. 31, I bonds will be paying 4.3% interest. Again, that rate could drop starting Nov. 1, but for those six months, you're guaranteed that rate, which isn't a bad one for an investment that's really low-risk.

But should you put your money into I bonds now? Or is there a better option?

You may want to stick to a certificate of deposit instead

An interest rate of 4.3% on I bonds might seem like a good deal. But remember that prior to May 1, these bonds were paying 6.89% interest. So that's a notable difference. 

Plus, the interest rate I bonds are paying as of May 1 isn't far off from the interest rate you might get on a certificate of deposit (CD) at an online bank. In fact, some CDs these days are paying more than what I bonds are paying for a one-year term. And while CDs certainly come with rules, they can be more flexible than I bonds.

With a CD, you commit to tying your money up for a preset period of time. But when you buy I bonds, you're required to hold them for at least a year. And if you cash them out before having held them for five years, you'll face a penalty. 

So, let's assume you're looking at the same interest rate for I bonds and a one-year CD. If you opt for the CD, you can take your money out after a year, enjoy the interest income you earned, and do what you please without any penalties. With I bonds, you can't just take your money and run in that scenario -- you'll be penalized for not holding your bonds for a five-year period.

Plus, if you open a one-year CD, once that year is up, you can assess the situation and see whether you want to open another CD or not based on what rates look like. With I bonds, your money isn't "freed up" after a year. And we don't know what interest rate I bonds will be paying a year from now. So in that regard, you're taking a bit of a risk. 

Think carefully before buying I bonds

I bonds might still be a suitable investment for your portfolio. But before buying them, think about whether there's a better option since the rate on these bonds is dropping and CDs are paying more generously.