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. That gives the bond a new value (old value + interest earned).
Both bonds and notes pay interest every six months.
Key Points. Pros: I bonds come with a high interest rate during inflationary periods, they're low-risk, and they help protect against inflation. Cons: Rates are variable, there's a lockup period and early withdrawal penalty, and there's a limit to how much you can invest.
This fixed rate stays with those I Bonds throughout the 30 years that they earn interest. The current semiannual inflation rate of 3.38% will reset every 6 months following the purchase, or renewal, of your I bond.
I bond fixed rates are determined each May 1 and November 1. Each fixed rate applies to all I bonds issued in the six months following the rate determination. The semiannual inflation rate is determined each May 1 and November 1.
The 4.30% composite rate for I bonds issued from May 2023 through October 2023 applies for the first six months after the issue date. The composite rate combines a 0.90% fixed rate of return with the 3.38% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).
Can I Bonds lose value? No, I Bonds can't lose value. The interest rate cannot go below zero and the redemption value of your I bonds can't decline.
I bonds issued from May 1, 2023, to Oct. 31, 2023, have a composite rate of 4.30%. That includes a 0.90% fixed rate and a 1.69% inflation rate. Because I bonds are fully backed by the U.S. government, they are considered a relatively safe investment.
Another advantage is that TIPS make regular, semiannual interest payments, whereas I Bond investors only receive their accrued income when they sell. That makes TIPS preferable to I Bonds for those seeking current income.
Individuals, organizations, fiduciaries, and corporate investors may buy Treasury securities through a bank, broker, or dealer.
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.
Step 1: Max out your $10,000 per person calendar year limit conventionally. You can buy $10,000 yourself and your spouse can buy $10,000 through their Treasury Direct login. Step 2: You could buy $10,000 or more in gift I Bonds in May that you could deliver to your spouse in future years.
I bonds: A low-risk investing strategy
Because I bonds are backed by the U.S. government they carry very little risk. Plus, you'll have the added bonus of protecting your cash's purchasing power.
Right now, I bonds will deliver a 9.62% annualized interest rate, which means that they'll get you higher returns than other traditional savings methods, like savings accounts. The attractive yield has spurred Americans to open more than 1.5 million accounts since last November.
For a $10,000 bond with a 9.62% interest rate, you would earn $481 for six months. For that size bond with a 6.47% interest rate, you would earn $324.
EE Bond and I Bond Differences
The interest rate on EE bonds is fixed for at least the first 20 years, while I bonds offer rates that are adjusted twice a year to protect from inflation. EE bonds offer a guaranteed return that doubles your investment if held for 20 years. There is no guaranteed return with I bonds.
If you are looking to protect your principal and guard against inflation, I bonds are still worth it long term — even with them down from the eye-popping 9.62 percent rate from last year. Even as inflation continues to retreat, you're guaranteed at least six months of the yield available at the time of your purchase.
Interest on I bonds is exempt from state and local income taxes and, if you qualify, from federal income tax when used to pay for higher education. You can buy up to $10,000 in electronic I bonds per person in a calendar year, with an online account at TreasuryDirect.gov.
The short answer is bonds tend to be less volatile than stocks and often perform better during recessions than other financial assets. However, they also come with their own set of risks, including default risk and interest rate risk.
Bond prices decline when interest rates rise, when the issuer experiences a negative credit event, or as market liquidity dries up. Inflation can also erode the returns on bonds, as well as taxes or regulatory changes.
Bonds are relatively safer. Because they're a debt security, they function as an IOU. The company pays you interest, and once the bond matures, you get your principal bank. Bonds aren't completely risk-free; there is the possibility of the issuer defaulting on its bonds or inflation reducing the value of the bond.
In any one calendar year, you may buy up to $10,000 in Series EE electronic savings bonds AND up to $10,000 in Series I electronic savings bonds for yourself as owner of the bonds. That is in addition to the amount you can spend on buying savings bonds for a child or as gifts.
You can sell back your electronic I bonds through the TreasuryDirect site. Selling I bonds before five years will result in losing the last three months of earned interest. You can try cashing in your bonds through your local bank, but not all institutions offer the service.
With rising federal funds rates comes an increase in savings interest rates. Federal Reserve Board members and Federal Reserve Bank presidents predict the federal funds rate will reach between 3.9% and 4.9% in 2023.