I Bond — can rates go down?
Hello, Terry, I read your recent article about Ibonds and was all set to buy but have a silly question–is the rate quoted annual, or the life of the bond (i.e., if the rate is 9.62%, does that mean I”ll earn 9.62% annually? Thanks very much.
Terry Says
No — the rate changes every 6 months, based on inflation. And it could drop sharply because they look at “year-over-year” changes in the inflation rate. So we have had huge jumps in recent months. But if the Fed causes a recession and inflation drops, they might pay far less starting in November, or next May.
The interest you earn at 9.62 percent for this 6-month period will be locked in to the value of your bond. And you must hold it for at least one year. Then after that if rates drop and you want to get out, you will pay a penalty of 3 months loss of interest.
