Terry’s Columns I Bond Rates Drop Sharply

I Bond Rates Drop Sharply

By Terry Savage on April 29, 2023

Updated 04/29/23
The new rate for Series I bonds purchased after May 1, 2023 is 4.30%. That includes a new higher base rate of 0.90%, which will stay with the bond for its entire lifetime. Future inflation adjustments on these bonds will be made on top of that 0.90% fixed base rate. The current inflation adjusted portion of new I-bonds is 3.38%.

If you purchased bonds before the end of April, you will get the 6.89% rate for a full six months. Then this new inflation adjustment of 3.38% will be added to your old base rate of 0.40%. So your total return applied to those bonds for that next 6 months will be slightly under 3.8%.
(See nearby article under Financial Links for everything you need to know about purchasing I-bonds.)

Remember, there are two parts to the combined I-bond rate.

The most-noticed is the “variable” rate, which changes every 6 months according to a set formula based on the Consumer Price Index. It is currently 6.48%.

The second is the “fixed base rate” – which is determined by Treasury officials on no announced formula. It is currently 0.40%.

Together they make up the “combined rate” – currently 6.89% — which you will receive for a full 6 months IF you buy before the close of business on Friday, April 28th.

Since we know the CPI-based variable formula, we can say that the new variable rate on May 1st will drop from 6.48% to 3.38%.

This is the question mark. If it stays the same as the current 0.40%, then you must purchase now, because you will never break even by waiting.

If the base rate is increased to somewhere between 0.6% and 0.8% — as is being suspected – then you will have a much higher base rate for the life of the I-bond! That could be a valuable aspect of the bond.

Your “break-even” period with the higher base rate (as opposed to getting 6.89% now for 6 months, and keeping the current 0.4% base rate) would be between 4.5 years and 9 years. After that, a higher base rate would make you a winner! (Unless, of course, inflation returns, and you’re stuck with that base rate forever!)

If you thought you’d cash in your I-bonds after the 5 year penalty period (3 months loss of interest) you’re probably better off buying Series I bonds this week! And don’t wait until Thursday, when the TreasuryDirect.gov website will be jammed.

OR CONSIDER THIS: If you want liquidity but no long term commitment, here’s a reminder that both 3- and 6-month Treasury bills (also available throughTreasuryDirect.gov) are currently yielding over 5%. Yes, you have reinvestment rate risk when they mature and must be rolled over. But you also have penalty-free liquidity at maturity.

And that’s The Savage Truth!



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