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I Bonds' New Rate Isn't a Record, But They're Still a Great Investment

The new six-month inflation rate for Series I savings bonds remains strong.

A picture of a paper I bond
The next inflation rate for Series I savings bonds will be announced on May 1, 2023.
DNY59/iStock/Getty Images

This story is part of Recession Help Desk, CNET's coverage of how to make smart money moves in an uncertain economy.

While stocks flounder and the crypto winter persists, US Treasury bonds have become a surprisingly hot investment item in 2022. The record high rate for Series I savings bonds announced on May 1 crashed the TreasuryDirect site, and it happened again when a huge wave of investors attempted to buy I bonds on Oct. 27 and 28, the final days of the record rate.

The interest rate on I bonds changes every six months, and on Nov. 1 the Treasury announced the new rate: 6.89%. While that's lower than I bonds' interest rates for the past two periods, it's still much higher than typical interest on high-yield savings accounts or certificates of deposit.

How do I bonds work, how much interest do they pay, and who can buy them? Learn the ins and outs of Series I savings bonds to see if they could work for you as a safe investment during uncertain times.

For more on inflation and investing, discover how to invest during a bear market and steps to take if you're worried about a recession.

What are Series I savings bonds?

Introduced in 1935 during the Great Depression, savings bonds were created to provide a savings vehicle for Americans, while also raising money for the federal government.

The US Treasury has added and discontinued several series of savings bonds since then -- most notably Series E defense bonds, which helped fund efforts in World War II and continued long after. Today, only two savings bonds remain: Series I and Series EE bonds.

Series I bonds have variable rates that are connected to current inflation data, and their interest rate may shift every six months, depending on whether consumer prices have risen or fallen. Series EE bonds are tied to long-term Treasury interest rates and guaranteed to at least double in value over the course of 20 years. 

Originally sold as paper bonds that look similar to large checks, most I bonds are now sold electronically via the TreasuryDirect website. You can also still purchase paper I bonds -- currently featuring portraits of famous Americans like Helen Keller, Martin Luther King, Jr. and Albert Einstein -- using your tax refund.

How do I bonds work?

I bonds can be purchased electronically starting at $25. Paper bonds are currently sold in denominations of $50, $75, $100, $200, $500 and $1,000.

You can buy up to $10,000 of I bonds electronically every year, plus an additional $5,000 in paper bonds if using money from a tax refund.

I bonds are best for those looking for a longer-term, low-risk savings vehicle. You can't cash out your bonds for at least 12 months, and there's a three-month interest penalty for redeeming them before five years. Your I bonds can earn interest for up to 30 years.

You won't receive the interest from I bonds or need to pay taxes on that interest until they're cashed out -- although you can pay taxes each year on the earnings as you go. If you are using I bonds to pay for higher education, you may not have to pay any taxes at all on the interest.

How much do I bonds pay?

The interest rate of I bonds for the past six months was 9.62%, the highest yield this savings bond has offered since its debut in 1998. The new inflation rate for I bonds is 6.89% and will last until May 1, 2023. 

Interest rates determine the amount of money you earn on your savings. I bond interest rates are calculated by combining a fixed rate that stays the same throughout the duration of holding the bond with a six-month variable rate that's based on the Consumer Price Index for All Urban Consumers, or CPI-U, which includes food and energy prices. The variable rate changes twice a year on the first days of May and November.

When I bonds were introduced in September of 1998, the fixed rate was 3.40%, but the days of decent fixed rates ended with the recession of 2008 -- rates have been under 1% since. The fixed rate on I bonds has been 0% since May 2020.

A screenshot of the purchasing page for I bonds on TreasuryDirect

You can make a one-time or recurring purchase of I bonds on by Peter Butler

The variable rate on I bonds represents the measured inflation rate for the past year and is the interest rate you'll earn on your savings for the first six months of holding an I bond. The previous record rate was set by doubling the 4.81% increase in the CPI-U (which measures average price changes to consumer goods for urban consumers) from October 2021 to March 2022. 

You can find more about how much these bonds have paid over time by viewing the historical chart of I bond rates from TreasuryDirect.

Pro tip: You receive interest on your I bonds at their current interest rate for six months from the first day of the month you buy them. People who were able to purchase I bonds before Oct. 28, 2022 will get the 9.62% rate on those I bonds until April 2023. The lag in interest rates lets you earn money for six months on an inflation rate from several months ago.

Why you might consider buying an I bond 

Unless prices decrease dramatically or rates on traditional deposit accounts spike sharply, you're going to earn much more on your money with an I bond than with a savings account or certificate of deposit.

If you bought a $10,000 I bond next week at the current 6.89% interest and that rate remains near that level for a year, you'd earn about $689 on your savings in your first year. Even if you cash out after a year and lose the last three months of interest, you're going to earn about $525.

In comparison, the very best five-year CDs right now will give you about $350 in interest on this same amount in your first year. A strong high-yield savings account will earn about $200.

I bonds are considered relatively safe investments, since they're backed by the government and not as volatile as investing in the stock market or cryptocurrency.

What are the risks of I bonds?

If inflation drops to nothing, or prices decrease, your APY could go as low as zero. The US has had two six-month periods -- ending May 2009 and May 2015 -- when prices actually went down on average. The interest rate for I bonds at that time dropped to zero.

In that rare case of six-month deflation, you may not earn interest, but your rate will never go below zero. This means you won't lose money on I bonds (unless the government runs out of it) and you won't lose any interest you accrued previously.

If the Federal Reserve continues to raise interest rates, the returns on deposit accounts like high-yield savings accounts could move higher as well, making them more comparable to I bonds. Stocks have given double-digit returns in recent years… but they also crashed during the last recession

One other risk of tying your money up with I bonds is that you can't access your funds for at least a year. If emergencies or necessary purchases arise, you're out of luck. The Treasury does allow exemptions for people who've suffered natural disasters.

Similarly, if you need to redeem bonds before five years, you lose the last three months of interest earned.

Who can buy and hold Series I savings bonds?

US citizens (no matter where they live), US residents or civilian employees of the US federal government (regardless of citizenship or residence) with a Social Security number can purchase electronic or paper I bonds..

To buy electronic I bonds, you must create an online account with TreasuryDirect, which is restricted to people 18 years old and up. 

You can purchase I bonds for your children or anyone else. The limit of $10,000 per year of electronic bonds is determined by the holder of the bond, not the purchaser. You can purchase I bonds for as many people as you'd like. If you have a family of four, you could buy $40,000 per year electronically (not including any paper bonds bought with tax refunds).

Corporations, LLCs, small businesses, trusts and estates can also purchase I bonds. Businesses and organizations are restricted to the same $10,000 yearly limit as individuals.

How do I buy Series I savings bonds?

After registering for an account at TreasuryDirect, you can purchase your electronic I bonds using the site's BuyDirect feature. Once the bonds are in your online account, you can cash them or transfer ownership of them using the site's ManageDirect page.

To purchase paper I bonds, you'll need to buy them with your federal tax refund, using Form 8888 or popular commercial tax software to indicate your I bond purchases up to $5,000. The paper bonds will be mailed to you about three weeks after your tax return is processed.