- Treasury raised the I bond rate. Newly purchased Series I bonds will pay 5.51% annual interest from Nov. 1 through April 30, the Treasury Department announced, up from the 4.26% rate on bonds bought through Oct. 31, an increase of 1.25 percentage points.
- The fixed rate is the big story for long-term savers. The rate has two parts: a fixed rate of 1.40%, up from 0.90% in April and the highest since 2006, which never changes after purchase, and a variable portion of 4.08% based on inflation. Together they make the 5.51% composite after rounding.
- Inflation is the driver. The consumer price index rose 3.7% in September from a year earlier, up from 3.4% in August, as energy costs tied to the Iran war, tariffs, AI data center demand and travel pushed prices higher. The New York Fed’s one-year inflation expectations jumped to 3.9% in September, the highest in more than three years.
- It is still far below the 2022 peak. I bond rates hit a record 9.62% in May 2022, drawing many short-term buyers who later redeemed as rates fell. “I bonds are a lot more attractive at this point,” said David Enna, founder of Tipswatch.com.
What Happened?
Treasury resets I bond rates every six months, in May and November. The variable portion is tied to the six-month change in inflation and stays the same for six months after purchase, while the fixed rate is locked in for the life of the bond. Treasury does not disclose how it sets the fixed rate, but Ken Tumin, founder of DepositQuest, said it may be driven by real yields on five-year Treasury Inflation-Protected Securities, or TIPS.
Why It Matters?
Because the fixed rate holds for as long as an investor keeps the bond, up to 30 years, buyers this round lock in the highest fixed rate since 2006 on top of the inflation-linked portion. The 5.51% composite also sits above the 4.933% yield on the 10-year Treasury on Friday, though the I bond’s variable portion will reset every six months with inflation.
What’s Next?
Existing I bond owners keep their original fixed rate, and their variable rate changes on the six-month anniversary of their purchase. Buyers should note the restrictions: bonds cannot be redeemed within the first year, and cashing out within five years costs the last three months of interest. The next rate change comes in May and will depend on inflation data.
