Does It Still Make Sense to Buy I-Bonds?

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I-Bonds: That was then

Nearly a year ago, I – provisionally and with qualifications – declared Series I Savings Bonds (“I-Bonds”) to be the fabled “free lunch” due to the remarkable, government-guaranteed 9.62% annualized interest rate that they were then paying, at a time when most savings accounts were still offering a paltry fraction of one percent. (For a refresher on I-Bonds basics, see my firm’s initial article on the topic.)

Since I-Bonds are inflation-linked instruments, that interest rate was driven by multi-decade highs for inflation rates. The fact that I-Bond rates have now come back down to earth is more good than bad because it means inflation has abated.

I-Bonds: This is now

The new headline rate, beginning in May 2023, is 4.30%. However, that level includes a 0.90% fixed rate for bonds purchased between May and October of this year. I-Bonds purchased previously will pay an even lower rate. Any I-Bonds purchased prior to last November (which would include any that were obtained in time to snag that snazzy 9.62% rate) carry a 0% fixed rate, so they will pay just the inflation rate of 3.38%.1

Meanwhile, many other safe options, such as Treasury Bills and CDs, are now paying interest rates of 4.5% or more. So what should we do with our I-Bonds? This article offers some general thoughts.