I
I bonds earn interest from the first day of the month you buy them. Twice a year, we add all the interest the bond earned in the previous 6 months to the main (principal) value of the bond.
Do I Bonds earn interest monthly? Yes, I Bonds earn interest monthly. However, you only get access to those interest payments when you cash out the bonds. The interest you earn is added to the value of the bond twice per year (May and November).
The fixed rate stays the same for the life of the bond. The inflation rate can change every six months from the issue date of the bond.
Another disadvantage is I bonds can't be purchased and held in a traditional or Roth IRA. The I bonds have to be held in a taxable account. A final disadvantage of I bonds is there is an interest penalty if the bonds are redeemed in the first five years.
Variable interest rates are a risk you can't discount when you buy an I bond, and it's not like you can just sell the bond when the rate falls. You're locked in for the first year, unable to sell at all. Even after that, there's a penalty of three months' interest if you sell before five years.
TIPs offer comparable inflation protection relative to I Bonds at higher yields, a significant advantage. TIPs are also somewhat riskier, more volatile securities, with quite a bit of interest rate risk. Both asset classes are good investments, but TIPs are slightly better, due to their higher yields.
What will the May 2023 I Bond inflation rate be? The May 2023 I Bond inflation rate is announced at 3.38%* based on the March 2023 CPI-U data.
The current bond composite rate is 4.3%. That rate applies for the first six months for bonds issued from May 2023 to October 2023. For example, if you purchased I bonds on May 1, 2023, the 4.3% rate would be in effect until Oct. 31, 2023.
Are I bonds a good investment for you? I bonds can make good short-term investments, but you should feel comfortable holding them for at least one year and ideally, five years before cashing them in. They can be a good fit for seniors who want to earn interest on their savings while also keeping their nest egg safe.
I savings bonds earn interest monthly. Interest is compounded semiannually, meaning that every 6 months we apply the bond's interest rate to a new principal value.
For example, if the composite rate is 2.57%, the bond value after 1 month is $25 × (1 + 0.0257/2)^(1/6) = $25.05, and after 4 months is $25 × (1 + 0.0257/2)^(4/6) = $25.21, and after 6 months is $25 × (1 + 0.0257/2)^(6/6) = $25.32.
May 1, 2023. Series EE savings bonds issued May 2023 through October 2023 will earn an annual fixed rate of 2.50% and Series I savings bonds will earn a composite rate of 4.30%, a portion of which is indexed to inflation every six months.
If you purchased I bonds near the end of October, you get credit for the full month, Swanburg said, meaning you can cash out as early as Oct. 1, 2023 next year. What's more, “I Bonds only accrue interest on the first day of the month,” Swanburg said, so there's no benefit to cashing out later in the month.
I bonds cannot be cashed for one year after purchase. Then, if a bond is cashed during years two through five after purchase, the prior three months of interest are forfeited. There is no interest penalty for cashing in the bonds after five years.
Series I bonds offer a fixed rate of interest plus an inflation adjustment. By October 2022, the I Bond rate was 9.62%. Series EE savings bonds also mature after 30 years. Like I Bonds, they will earn interest until they are redeemed.
If you buy I Bonds between November 2022 and April 2023, you'll be guaranteed a total rate of 6.89% for the next six months (based on the previous six months formula). After that time period, your total rate will be 3.79% for the following six months (remember the fixed rate remains at 0.40% for the life of the bond).
I bonds also have important tax advantages for owners. For example, interest earned on I bonds is exempt from state and local taxation. Also, owners can defer federal income tax on the accrued interest for up to 30 years. Unfortunately, though, the federal tax rules aren't always straightforward.
A $500 Series EE savings bond is worth $1,000, if you hold it for 20 years. A $10,000 bond is worth $20,000 after 20 years.
Mortgage Bankers Association (MBA).
“Long-term rates have already peaked. We expect that 30-year mortgage rates will end 2023 at 5.2%.”
Individuals, organizations, fiduciaries, and corporate investors may buy Treasury securities through a bank, broker, or dealer.
If you feel optimistic that inflation is waning and will go back soon to more normal 2% levels, you may want to buy the full amount now and capture as high a rate as you can. That's also the case if you're not planning on holding your I-bonds for long, and will cash them out once your one-year holding period ends.
A higher fixed rate will offer more assurances that the bond will maintain purchasing power in the face of inflation. It will also provide some benefit in times of deflation. The current variable rate is 3.24% which is annualized and added to the current fixed rate of 0.4% for a composite rate of 6.89%.
Bonds are safer for a reason⎯ you can expect a lower return on your investment. Stocks, on the other hand, typically combine a certain amount of unpredictability in the short-term, with the potential for a better return on your investment.