The Treasury released the new I Bond and EE Bond rates today. New rates are announced on every first business day of May and November.
I Bond Rates for New Purchases
As I had calculated on October 13th, the I Bond inflation rate is 6.48% (annualized). The noteworthy news this time is the I Bond fixed rate. The Treasury increased the fixed rate from 0% to 0.40%. This is close to the peak fixed rate during the last rate hiking cycle (0.50% in Nov 2018 and May 2019). The result is a composite rate of 6.89%.
The change of the I Bond inflation rate from 9.62% to 6.48% may be a disappointment, but the 6.48% rate is the third highest inflation rate since the I Bond was introduced in 1998. Before today, the highest I Bond inflation rate was 9.62% that was set last May. The list below shows the six highest I Bond inflation rates. The full history of I Bond rates can be viewed at this TreasuryDirect page.
Six Highest I Bond Inflation Rates (Annualized)
- 9.62%, May 2022
- 7.12%, November 2021
- 6.48%, November 2022
- 5.70%, November 2005
- 4.92%, November 2008
- 4.84%, May 2008
I Bond Rates:
Composite Rate: 6.89%
Fixed Rate: 0.40%
Inflation Rate: 6.48%
EE Bond Rate: 2.10% (EE Bond is guaranteed to double in value in 20 years)
Rates effective November 2022 through April 2023
The I Bond composite rate is still high compared to today’s CD rates from online banks and credit unions, but it’s important to remember that the inflation rate on the I Bond changes every six months. Even if future inflation numbers go back to normal, that would still result in a competitive return for I Bonds over the next year.
For those looking for a safe inflation hedge, I Bonds are a good choice. One nice thing about I Bonds is that the composite rate is guaranteed never to fall below zero. So if we get a period of deflation (which has occurred after periods of high inflation), the I Bond composite rate will never be lower than zero. That’s an advantage over Treasury TIPS which can go negative.
TIPS currently have a yield advantage over I Bonds. The real yields of TIPS are currently around 1.60% (see this Treasury page). The I Bond fixed rate can be considered a real yield, and with this being 0.40%, TIPS currently have an advantage. However, there are several reasons to still max out on I Bonds. One reason is the I Bond tax advantage. For Treasurys including TIPS, federal income tax has to be paid yearly. On I Bonds, you can defer federal income tax until you redeem the I Bond or until it reaches its 30-year maturity.
An important downside of I Bonds is the purchase limit. The maximum that an individual can purchase per year is $10,000 at TreasuryDirect and $5,000 in paper bonds purchased with an IRS tax refund (There are ways to buy more I Bonds. Harry Sit of The Finance Buff has a useful review of how a married couple could buy up to $65,000 in I Bonds in one calendar year by using business accounts and trust accounts.)
I Bond Rates for Current I Bond Holders
I Bonds purchased in the past will get six months of this new inflation rate. The start of this six-month period depends on when you purchased the I Bond. An I Bond's new inflation rate takes effect every six months after its issue month.
Here are a few examples of when the new I Bond inflation rate will take effect on old I Bonds. If you purchased I Bonds in April 2012 and October 2014, the 6.48% inflation rate won't take effect on those I Bonds until April 2023. If you purchased I Bonds in July 1999 and January 2000, the 6.48% inflation rate won’t take effect on those I Bonds until January 2023. For more details, please refer to this Treasury Direct page.
Composite I Bond Rate = 9.58% to 10.20% for I Bonds Purchased before Nov 2001
Those who purchased I Bonds from September 1998 through October 2001 have a fixed rate that ranges from 3.00% to 3.60%. Those I Bonds will have a composite rate for six months that ranges from 9.58% to 10.20%. That’s a decline for the 6-month period based on last May’s I Bond inflation rate (9.62%) that resulted in composite rates between 12.76% to 13.39%. Nevertheless, it’s hard to complain about a safe return of around 10%.
EE Bond Rates
The Treasury finally increased the EE Bond rate. It’s now 2.10%. It had been 0.10% since May 2015. The new rate is higher than it has been since November 2007. This TreasuryDirect page has the history of EE Bond rates.
Even with this new rate, the main benefit of the EE Bond is holding it for 20 years. At the 20-year mark, the EE Bond value is guaranteed to at least double in value. A doubling in value is equivalent to an annual return of about 3.5%.
There has been some concern that the Treasury might end this double-in-value guarantee, but the Treasury kept this guarantee without any changes in today’s announcement.
When rates were low, this double-in-value guarantee made the EE Bond a good deal if you were okay holding the EE Bond for 20 years. However, Treasury yields are much higher these days. The estimated yields of the 20-year Treasury bond have been in the range of 4.00% to 4.60% in the last month according to the Daily Treasury Par Yield Curve Rates page. Thus, you will likely earn more today with Treasury notes and bonds.
Overview of Series I Savings Bond Features
Below is a summary of the I Bond features. More information is available at this Treasury Direct I Bond page:
- Can't be redeemed within 12 months of issue date
- Lose last three months interest if redeemed within five years
- Interest is composed of fixed and inflation-based rate
- Fixed rate remains for life of bond
- The composite rate will never be less than zero
- Inflation-based rate changes every six months after issue month
- New rates announced every six months on first business day of November and May
- Federal tax can be deferred on interest until bond is redeemed
- Interest is exempt from state and local tax
- Some or all interest is tax exempt when used for educational expenses
- Maximum purchases per calendar year and per social security number is $10,000 in TreasuryDirect and $5,000 in paper bonds purchased with IRS tax refunds (See The Finance Buff postabout extending limits via trust/business purchases)