You can count on a Series I bond to hold its value; that is, the bond's redemption value will not decline. Question: What is the inflation rate? November 1 of each year. For example, the earnings rate announced on May 1 reflects an inflation rate from the previous October through March.
No, I Bonds can't lose value. The interest rate cannot go below zero and the redemption value of your I bonds can't decline.
Series I bonds are considered low risk since they are backed by the full faith and credit of the U.S. government and their redemption value cannot decline. But with this safety comes a low return, comparable to that of a high-interest savings account or certificate of deposit (CD).
I Bond cons
The initial rate is only guaranteed for the first six months of ownership. After that, the rate can fall, down to a fixed-rate component which, as of May 1, 2023, stood at 0.9%. One-year lockup.
This means you and your spouse can lock in more than $10,000 at the 0.90% fixed rate. Some call this the I Bonds gift loophole, but this strategy is just following the rules that the US Treasury has set for gifting I Bonds to other individuals.
You can cash in (redeem) your I bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest.
Series I savings bonds are often considered a hedge against inflation. The current composite rate for I bonds is 4.3%. You can't buy more than $10,000 in electronic I bonds for yourself annually.
Cons of Buying I Bonds
I bonds are meant for longer-term investors. If you don't hold on to your I bond for a full year, you will not receive any interest. You must create an account at TreasuryDirect to buy I bonds; they cannot be purchased through your custodian, online investment account, or local bank.
TIPs offer comparable inflation protection relative to I Bonds at higher yields, a significant advantage. TIPs are also somewhat riskier, more volatile securities, with quite a bit of interest rate risk. Both asset classes are good investments, but TIPs are slightly better, due to their higher yields.
If you're wondering what the buzz around I bonds is, the answer lies in their interest rate. The current bond composite rate is 4.3%. That rate applies for the first six months for bonds issued from May 2023 to October 2023.
The risks and rewards of each
Given the numerous reasons a company's business can decline, stocks are typically riskier than bonds. However, with that higher risk can come higher returns.
Bond prices decline when interest rates rise, when the issuer experiences a negative credit event, or as market liquidity dries up. Inflation can also erode the returns on bonds, as well as taxes or regulatory changes.
May 2023 fixed rate will be 0.90%, total composite rate is 4.30% for next 6 months. For Savings I bonds bought from May 1, 2023 through October 31, 2023, the fixed rate will be 0.90% and the total composite rate will be 4.30%.
Are I bonds a good investment for you? I bonds can make good short-term investments, but you should feel comfortable holding them for at least one year and ideally, five years before cashing them in. They can be a good fit for seniors who want to earn interest on their savings while also keeping their nest egg safe.
The composite rate for I bonds issued from May 2023 through October 2023 is 4.30%.
The annual rate may drop below 4%
Of course, the combined annual yield is only an estimate until TreasuryDirect announces new rates in May. In November 2021, the annual I bond yield jumped to 7.12%, and hit a record high of 9.62% in May 2022 before falling to 6.89% in November 2022.
Mortgage Bankers Association (MBA).
“Long-term rates have already peaked. We expect that 30-year mortgage rates will end 2023 at 5.2%.”
$10,000 limit: Up to $10,000 of I bonds can be purchased, per person (or entity), per year. A married couple can each purchase $10,000 per year ($20,000 per year total). 7.12% interest: The yield on I bonds has two components—a fixed rate and an inflation rate.
This composite rate of TreasuryDirect Series I Savings Bond, applied to $10,000 in I bonds, would earn a guaranteed $215 in interest over the next six months (not $430, that's because it's an annualized rate) — but you cannot cash in your bond until you've held it for a year. So why even mention the six-month take?
Zero Coupon Bonds
For example, a $1000 bond might be traded on the open market at a cost of $600, to be paid in full after 10 years.
There is no limit on the total amount that any person or entity can own in savings bonds.
While the rules make I bonds unattractive for the very short term, their return potential means they don't make sense for the very long term, either, says Meade. "Even if it's at 6.89% now, that rate is likely to go down," she says.
That limit, however, is per person, not per family. So if you have a spouse, you're each allowed to buy $10,000 worth of I bonds in a given year. Meanwhile, right now, I bonds are paying 6.89% interest through April.
I bonds are safe investments issued by the U.S. Treasury to protect your money from losing value due to inflation. Interest rates on I bonds are adjusted regularly to keep pace with rising prices.