Series I bonds are ‘still a good deal’ despite an expected falling rate in May, experts say (2024)

FAQs

Series I bonds are ‘still a good deal’ despite an expected falling rate in May, experts say? ›

The annual rate for Series I bonds could fall below 5% in May based on inflation and other factors, financial experts say. That would be lower than the current 5.27% interest on I bond purchases made before May 1, but higher than the 4.3% interest offered on new I bonds bought between May 1, 2023, and Oct. 31, 2023.

At an initial rate of 4.28%, buying an I bond today gets roughly 1% less compared to the 5.25% 12-month Treasury Bill rate (May 1, 2024). You could say that buying an I Bond right now is a 'fair deal' historically compared to 2021 & 2022 when I Bond rates were much higher than comparable interest rate products.

But there are a few potential downsides. For instance, I bonds have a lower maximum investment limit than investments like stocks. And the interest earned on I bonds is subject to federal income tax.

Series I bonds will pay 4.28% annual interest from May 1 through October 2024, the U.S. Department of the Treasury announced Tuesday. Linked to inflation, the latest I bond rate is down from the 5.27% annual rate offered since November and slightly lower than the 4.3% from May 2023.

I bond cons

The initial rate is only guaranteed for the first six months of ownership. After that, the rate can fall, down to a fixed-rate component which, as of May 2024, stood at 1.3%. One-year lockup.

Despite the expected rate decline, I bonds are “still a good deal” for long-term investors, according to Ken Tumin, founder and editor of DepositAccounts.com, which closely tracks these assets.

All bonds carry some degree of "credit risk," or the risk that the bond issuer may default on one or more payments before the bond reaches maturity. In the event of a default, you may lose some or all of the income you were entitled to, and even some or all of principal amount invested.

Chances are you bought your I Bonds at the 0.0% fixed rate in 2021 or 2022, so as they are renewing your rates are coming in below 4%, compared to other interest rate accounts at roughly 5%. Keep in mind that cashing out in the first 5 years will cause you to lose your prior 3 months' interest.

Interest on I bonds is exempt from state and local taxes but taxed at the federal level at ordinary income-tax rates.

Where can I get 7% interest on my money? ›

May 1, 2024. Series EE savings bonds issued May 2024 through October 2024 will earn an annual fixed rate of 2.70% and Series I savings bonds will earn a composite rate of 4.28%, a portion of which is indexed to inflation every six months. The EE bond fixed rate applies to a bond's 20-year original maturity.

Answer: No. In periods of deflation, the bond's redemption value won't decline. Question: What are some tax advantages of the Series I bond? until redemption, final maturity (30 years after issue date), or other taxable disposition, whichever occurs first.

Can I cash it in before 30 years? You can cash in (redeem) your I bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest. For example, if you cash in the bond after 18 months, you get the first 15 months of interest.

On the other hand, fixed-income investors who want a safe investment and think inflation will remain high may want to consider I-bonds. However, those who think inflation will moderate might want to consider other types of bonds that may pay higher rates.

Bottom line. I bonds, with their inflation-adjusted return, safeguard the investor's purchasing power during periods of high inflation. On the other hand, EE Bonds offer predictable returns with a fixed-interest rate and a guaranteed doubling of value if held for 20 years.

In 2024, we expect mid- to high-single-digit percentage value growth on most of the world's bond markets. Corporate bonds are likely to be more interesting than government bonds due to their yield pick-up and sound fundamentals. Investment grade (IG) has it all, offering interesting real yields and low default rates.

Bottom line. If inflation and investment safety are your chief concerns — TIPS and I-bonds deliver both. TIPS offer greater liquidity and the higher yearly limit allows you to stash far more cash in TIPS than I-bonds. If you're saving for education, I-bonds may be the way to go.

So if you are a longer-term investor, it may be worthwhile to redeem your old I Bond and re-purchase a new one to lock in the higher fixed rate. Shorter term investors should think about cashing in their I Bond at the 12 or 15-month mark.