Current I-Bond Rates: Is It Still a Good Buy?
The days of 9.62% returns are gone, but I-Bonds remain a unique tool for safe savings. Unlike a savings account, I-Bonds have two interest components: an inflation rate that changes every 6 months, and a Fixed Rate that stays with the bond for 30 years. If the current Fixed Rate is high (above 1.0%), locking it in now can protect your purchasing power for decades. Here is the math behind the current rate and the strict “Lock-Up” rules you must know.
1. The Rule: Fixed vs. Inflation Rate
An I-Bond is a hybrid vehicle. Understanding the “Fixed Rate” is the key to long-term value.
Fixed Rate: Set at purchase. Stays the same for 30 years. (This is the “Real Return”).
Inflation Rate: Changes every May and November based on CPI data.
2. Comparison: I-Bond vs. Savings Account
Is it better than a High-Yield Savings Account (HYSA)? It depends on your timeline.
| Feature | I-Bond (Treasury) | HYSA (Bank) |
|---|---|---|
| Liquidity | Locked for 1 year. | Liquid (Withdraw anytime). |
| State Tax | 0% Tax. (Exempt). | Fully Taxable. |
| Rate Change | Every 6 months. | Any time (Fed meetings). |
| Purchase Limit | $10,000 / year. | No limit (FDIC caps apply). |
3. Timeline: The 5-Year Penalty Rule
I-Bonds are designed for medium-to-long term savings. Early withdrawal triggers a penalty.
| Holding Period | Access | Penalty Status |
|---|---|---|
| 0 – 12 Months | None | |
| 1 – 5 Years | Allowed | |
| 5 – 30 Years | Full |
4. Strategy: Buying More Than $10k
The $10,000 limit is strict, but married couples and families have options.
- Couples: You and your spouse can each buy $10,000 (Total $20,000).
- Tax Refund: You can use your federal tax refund to buy an additional $5,000 in paper I-Bonds (Total $15,000 per person).
- The Gift Box: You can buy a “Gift” I-Bond for your spouse today (locking in the current rate) and deliver it in a future year. This allows you to “pre-buy” for 2027 or 2028 if rates are good now.
5. Warning: What If Inflation Drops?
If the economy crashes and inflation turns negative (Deflation), the variable rate can go to 0%.
⛔ Rate Floor Protection
However, the composite rate never goes below zero.
- Even if inflation is -2.0%, your interest rate stops at 0.00%. You will not lose principal value.
- Fixed Rate Bonus: If you have a Fixed Rate of 1.3%, you will still earn that 1.3% even if inflation is zero. This is why buying when the Fixed Rate is high is crucial.