I bonds issued November 2022 through April 2023 will earn an interest rate of 6.89%, compared to the prior 9.62% rate, the U.S. Treasury Department announced Nov. 1, 2022.
I bonds are one of the types of savings bond issued and backed by the U.S. government. They are not only a low-risk investment option, but they are also protected from inflation.
The Treasury sets I bond rates twice a year — on May 1 and on November 1. These overall interest or composite rates are a combination of fixed rates and inflation rates. Until now, the fixed rate was set at 0% for five straight six-month periods.
For the most recent composite rate, the Treasury announced a fixed rate of 0.4%, which applies for the 30-year life of the savings bond, and an inflation rate of 6.48%, which is determined by Consumer Price Index for all Urban Consumers (CPI-U). The inflation rate component is always publicly available ahead of time and it changes every six months. The Treasury does not reveal its methodology for setting an I bond’s fixed rate component.
The latest inflation rate of 6.48% was determined by the CPI-U increase from 287.504 in March 2022 to 296.808 in September 2022, which calculates to an increase of 3.24%.
The Treasury’s formula to calculate an I bond’s overall composite rate for any six-month period is:
I bond composite rate formula: [fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]
Plugging in the numbers for the latest period, [0.0040 + (2 x 0.0324) + (0.0040 x 0.0324)], calculates to 0.0689 and the composite rate of 6.89%.
Buying I Bonds
To purchase an electronic I bond, establish an account at treasurydirect.gov. They are available in amounts from $25 to $10,000. Calendar year limits include $10,000 in electronic I bounds per Social Security Number or Employer Identification Number and up to $5,000 in paper I bounds with a tax refund.
Investors cannot redeem their I bonds within the first 12 months, and they must sacrifice 3 months’ worth of interest if cashed before five years.