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The U.S. Department of the Treasury has announced new rates for Series I bonds.
Newly purchased I bonds will pay 4.03% annual interest from Nov. 1 through April 30, which is up from the 3.98% yield offered through Oct. 31.
The new rate includes a variable portion of 3.12%, based on inflation data, and a fixed portion of 0.90%. The combined rate is 4.03% after rounding, according to the Treasury. The fixed rate is down from 1.10% announced in May.
In May 2022, the I bond rate hit a record high of 9.62%, and many investors flooded into the government-backed, nearly risk-free asset.
Since then, some shorter-term investors have redeemed holdings amid falling inflation and rates. But other long-term investors have purchased I bonds over the past couple of years to lock in the higher fixed rate.
How I bond rates work
I bond rates have a variable and fixed portion, which the Treasury adjusts every six months, in May and November. The combined yield is known as the “composite rate,” which is paid to investors for a six-month period.
The variable rate is tied to inflation, and stays the same for six months after your purchase date, regardless of the Treasury’s next adjustment.
Meanwhile, the fixed rate stays the same for the life of your I bond after purchase. The fixed portion can be harder to predict, and the Treasury doesn’t disclose how it calculates the change.
How the change impacts current I bond investors
If you currently own I bonds, there’s a six-month timeline for rate changes, which shifts depending on your original purchase date.
After the first six months, the variable yield changes to the next announced rate. But the fixed rate stays the same for the entirety of your holding.
For example, let’s say you purchased I bonds in March. Your variable rate would be 1.90% and shifts to 2.86% in September. Your fixed rate remains at 1.2%. At that point, your new composite rate would be 4.06%.
You can earn I bond interest for up to 30 years, or less if you redeem the assets before that. However, you can’t cash in I bonds for at least one year after purchase. If you redeem within five years, you lose your last three months of interest.