New I-Bond interest rate

I-Bonds are the safest investment in the market.

The actual rate of interest for an I bond is a combination of the fixed rate and the inflation rate. The combined rate can, and usually does, change every 6 months. Both the fixed rate and the inflation rate were changed and announced today.

I bonds protect you from inflation because when inflation increases, the combined rate increases. In the event of deflation (which is rare) the inflation rate is set at zero, not negative, so the value of the I-Bond can never drop below its face value. Unlike any other bond (including TIPS) the value of the I-Bond does not drop if it is cashed before maturity in a rising interest rate environment. It is always guaranteed to return its par value plus the inflation adjustment.

Since inflation has subsided in the past 6 months the yield from all I-bonds, including older ones and the ones bought today, will be lower than the inflation from the previous 6 months.

However, the fixed rate of the new I-Bonds was just raised to 0.9%, higher than it has been since 2007. The fixed rate on I bonds bought last year was 0%. Over their 30 year duration, the new I-Bonds may yield more than other long-term bonds (e.g. Treasuries and TIPS) without the risk of potentially losing principal if they are redeemed before maturity.

Many people bought I-bonds last year when their yield was 9.62%. If redeemed before 5 years the penalty will be 3 months of interest. Those bonds will now yield 0% + the inflation rate minus the penalty if cashed on their one-year anniversary.



Ironically, those I-bonds that everyone was so excited (9+%!!!) about last year and early this year, will yield less over their 20-30 years than these newer less exciting (4.3%) I-bonds. I mean the excitement was so high that newspapers like the Wall Street Journal even featured them.

Quick Service - The I-bond we purchased via a planned 2022 overpayment arrived via the USPS. It will be sent it to the Treasury Department, with a request for deposit into our Treasury Direct portfolio.