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After a difficult year for the stock market, investors have poured money into Series I bonds, a nearly risk-free and inflation-protected investment that is paying a record 9.62% per year through October.
With the rate expected to drop to around 6.48% in November, there’s a short window to lock in higher rates for six months, provided you haven’t exceeded the 2022 I-Bond buy limits.
While I change bond rates twice a year based on inflation, you can still lock in 9.62% annual interest for six months — as long as you complete the purchase by October 28. And six months after your purchase date, you earn about 6.48% for another six months.
“It’s an option if someone wants the best of both worlds,” said Ken Tumin, founder and publisher of DepositAccounts.com, which tracks iBonds among other things.
You can estimate I-Bond rates for a year
I-Bond rates have two parts: a fixed rate that stays the same after purchase, and a floating rate that changes twice a year based on inflation.
The US Treasury announces new interest rates every May and November, and you can estimate the next floating rate about two weeks in advance using the CPI reports released in April and October.
The estimates provide a short period of time to know approximately what you will earn for a year, ie how long after purchase you will lose access to the funds.
“It’s nice to know what interest rates you’re getting when you commit to a 12-month lockup,” said Jeremy Keil, a certified financial planner at Keil Financial Partners in Milwaukee.
While it’s too early to estimate May 2023 rates, if you buy I-Bonds before the end of October, you’ll get May and November rates for six months each.
“There’s no doubt that it’s better to get the 9.62% for the first six months and then the 6.48% for six months,” said David Enna, founder of Tipswatch.com, a website that tracks interest rates tracked for I bonds.
It’s nice to know what interest rates you’re getting if you commit to a 12-month lockup.
Financial Advisor at Keil Financial Partners
“A short-term investor — someone who just wants to put money aside — should definitely buy in October,” he said.
However, if you’re trying to lock in the 9.62% interest rate before November, Enna suggests making the purchase no later than a few business days before the end of October.
TreasuryDirect says you must complete your purchase and receive a confirmation email by October 28th.
What you should know before buying I-Bonds
Though knowing roughly one-year I-Bond rates can be attractive, there are a few things to consider before buying, experts say.
“The biggest disadvantage is that you are locked up for 12 months,” said Keil. “You can’t take it out for any reason.” And you’re giving up three months of interest if you cash in five years ago.
Still, I-Bonds might be worth considering for some of your emergency savings while other cash is available for unexpected expenses, he said.
And if you’re anticipating tuition bills in 2024, Keil says it’s a “great time” to lock in a year’s worth of guaranteed interest that’s tax-free on qualifying education expenses.
Correction: According to TreasuryDirect, to lock in the 9.62% interest rate before November, you must complete your purchase and receive a confirmation email by October 28th. A previous version gave the timing incorrectly.