On Wednesday, May 1, the U.S. Treasury Department announced that I bonds issued from May through October 2024 will earn an interest rate of 4.28%, down from the previous rate of 5.27%. Although the new rate is lower, its fixed component could still appeal to long-term investors, as it is once again the highest since 2007.
Series I bonds, a type of savings bond issued and backed by the U.S. government, provide a low-risk investment option while also offering protection against inflation.
Latest Rate
The Treasury updates the rates for I bonds twice a year, on May 1 and November 1. These rates consist of a fixed rate and a variable, inflation-adjusted rate, which together form the composite rate. The inflation component adjusts every six months, while the fixed rate stays the same for the bond’s 30-year duration.
For the latest composite rate, the Treasury announced a fixed rate of 1.3% for the second time in a row, the highest since it was set at this level on May 1, 2007, along with an annualized inflation-adjusted rate of 2.96%, determined by the Consumer Price Index for all Urban Consumers (CPI-U). The inflation rate component is always publicly available in advance and adjusts every six months. However, the Treasury does not disclose the methodology for determining the fixed rate component of an I bond.
The latest annualized inflation-adjusted rate of 2.96% was determined based on the increase in the CPI-U from 307.789 in September 2023 to 312.332 in March 2024, reflecting a six-month change of 1.48%.
The Treasury’s formula for calculating 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, [0.0130 + (2 x 0.0148) + (0.0130 x 0.0148)], calculates to 0.0428 and the composite rate of 4.28%.
Buying I Bonds
To purchase an electronic I bond, you need to establish an account at treasurydirect.gov. These bonds are available in amounts ranging from $25 to $10,000. The annual limits include $10,000 in electronic I bonds per Social Security Number or Employer Identification Number, and up to $5,000 in paper I bonds using a tax refund.
Investors cannot redeem their I bonds within the first 12 months, and they must forfeit three months’ worth of interest if the bonds are cashed before five years.
