Warning: I-bond interest rates are about to drop precipitously
Series I bonds had a good two-year run at the top of the interest-rate heap, but the next 6-month rate that will be announced on May 1 is likely to fall so low that buyers probably won’t show up in record-breaking numbers.
If the composite annualized I-bond rate stays in line with predictions, it will come in below 4%, making I-bonds less lucrative in the short-term than other comparable investments like Treasury bills, TIPS, CDs and even some high-interest savings accounts.The good news is that consumers know this information now, when there’s still time before the rate changes on May 1 to strategize.
The key thing to know is that if you buy an I-bond in April at an annualized rate of 6.89%, you maintain that rate for six months and you don’t start earning the new rate until October. At that point, you get the prevailing variable rate plus the fixed rate that came with your original purchase, which in this case would be 0.4%. If you average those together, you’re earning around 5.34% for a year. That’s still top of the market for right now.
The sell and buy more strategy If inflation is waning and I-bond rates are slipping below comparable investments, why would you want to buy more?
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