Series I Savings Bonds -- informally known as "I bonds" to many Americans -- are an inflation-protected form of savings bonds you can purchase directly from the United States Treasury.
Right now, I bonds are paying a record-high 9.62% annual interest rate due to high inflation, but it is going to reset at the end of October for newly purchased I bonds. The good news is that if you act quickly, you can still lock in this interest rate for the next six months.
With that in mind, here's what you need to know about the I bond interest rate and where it could be heading next, the pros and cons of owning I bonds, and how to make sure you lock in your 9.62% interest rate before it resets.
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What are I bonds?
I bonds are inflation-protected savings bonds issued by the United States government. Unlike other types of savings bonds, these pay an interest rate that consists of two parts. There's a fixed interest rate (currently at 0%), and an inflation adjustment (currently 9.62%).
Every six months, the U.S. Treasury Department announces the new interest rates that apply to I bonds. This happens in May and November, although the inflation-based portion can be accurately estimated by recent inflation data that we already have.
How I bond interest rates work
When the Treasury announces a new interest rate, it doesn't mean that all existing I bonds immediately reset to that rate.
Instead, the current I bond interest rate applies to new purchases for the first six months. So, even though the 9.62% rate applies from May through October 2022, any I bonds purchased before the end of October get to lock in the 9.62% interest rate for six full months. After the first six months, the rate will change to the then-current interest rate for the next six months, and so on.
Based on recent inflation data, the I bond variable interest rate should change to about 6.48% starting in November. While this is still quite high in a historical context, it's more than three percentage points lower than the rate you can get until the end of October. So, if you're looking for a solid income investment and think I bonds are right for you, it can be worthwhile to go ahead and buy now.
Know what you're getting into
While a guaranteed 9.62% yield may sound fantastic (and it is), it's important to realize it isn't without drawbacks.
For one thing, you're locked in for a full year. If you buy now, you'll know exactly what your I bonds are going to pay for the next 12 months (9.62% and then 6.48%), but it's important to realize your money will be tied up. And, if you sell within the first five years, you'll forfeit the prior three months' worth of interest.
It's also worth noting that you can't just put as much money as you want into I bonds. Purchases are limited to $10,000 per person, per year.
How to get started
In order to lock in the 9.62% rate for the next six months, you need to make sure your I bonds are issued in October. According to the Treasury, purchasers must buy their I bonds by Oct. 28 and get a confirmation email in order to make sure their bonds are issued by the end of the month. Fortunately, the process for purchasing I bonds is rather quick and easy -- simply go to TreasuryDirect.gov and open an account.
