New I Bonds Rate Announced At 4.30% For May-Oct 2023 (3.40% Variable Rate, .90% Fixed Rate)

The new I Bonds rate for May – October has been announced as 4.30%. That includes two parts. 1) 3.40% variable rate – that will be the rate for six months. 2) .90% fixed rate – that will be for up to 30 years, added on top of whatever variable rate is available at the time.

We wrote over what was being projected  a couple of weeks back, and now the actual numbers were released and showing the on Treasury Direct website. The numbers are a bit higher than what was being projected.

  • Interest rate for November 2022 through April 2023: 6.48% variable rate + .40% fixed = 6.89% total.
  • Interest rate for May 2023 through October 2023: 3.40%% variable rate + .90% fixed = 4.30%% total.

The Treasury has never released the new rate until the 1st, yet this time they decided to put it out there a bit earlier which is interesting. It’s no longer possible to buy in April since transactions initiated today will apparently finalize in May with the May rate. (If you prefer the new rate due to the higher fixed amount, I’d hold off purchasing until Monday just to be sure that it doesn’t get in on the old rate.)

As far as buying now with the 4.30% rate: as mentioned prior, 4.30% isn’t great since you can get a 12-month CD with around 5% APY from various banks, currently. Still for someone in a high city/state tax bracket it might make sense.

Just remember you’ll lose 3 months of interest if you cash out within 5 years. Ultimately, it mainly makes sense to buy now if you’re thinking longer term. That takes away the 3 month sting, and also helps you lock in the .90% fixed rate for the longer term on top of whatever rate the Treasury  if offering then.

Reminder: the 4.30% rate is only for new purchases. Those who purchased previously will only get 3.40% for these six months (along with whatever your fixed rate is, which is zero in many cases). Also remember, the six months of 3.40% for previous purchases don’t necessarily begin on May 1st; it depends when you bought. And don’t forget about the 3 month penalty and time accordingly. For those looking to pull out of I Bonds, check out this article from Tipswatch on when you should pull out. See also this comment.

Personally, I’m going to decide in October whether to buy in at this 4.30% rate, based on what the general market rates are and based on how long I want to hold with the .90% fixed rate.
    Chuck
  • On April 28, 2023, 16:09
Tags: bondshigh yield

View Comments (74)

  • Through 5 months, looks like the next variable interest rate will be about 4.1%.

    I'm going to begin liquidating my bonds three months past the falloff of their 6.5% rate.
    For instance, I'm going to be cashing out my Jan-22 bonds on 10/2/23.

  • May CPI came in as expected, 0.1% for the month, 4.0% for the year, variable I-bond rate sits at 1.52% with four months to go

    • @guest_1608230 My colleagues can attest to my predictions (which have been right so far). I will share them here.

      1) I thought the 9.1% we saw was the peak.
      2) I thought we would go down (although I didn't expect it to be equally as fast as the 70's - in fact it is occurring slightly faster than the 70's)
      3) I told my colleague we would get under 5 (when we are in the 6's)...then under 4 (when we were in the 5's). We are just about under 4 and we will get under 4.
      4) I told my colleague that once we were in the mid to low 3's, the Fed will declare mission accomplished. Based on what I am reading now, I don't think they will outright SAY that. Instead they will just stop the rate hikes.
      5) Just like in the 70's we will experience the bullwhip effect (see the second big spike in CPI in the late 70's)

      If you overlay the 2022-2023 CPI curve on top of the 1970's curve it'll matchup almost 1:1, with the 2023 decline being SLIGHTLY faster. From where the 2023 curve is on the 1970's curve (12/1975), the 1970's curve hit the absolute bottom (5%) 1 year later (12/1976). Considering that CPI is going down quicker this time around, I think the bottom will hit quicker (6-9 mo?), and people should feel more comfortable to start buying sooner than in the 70's meaning, meaning the bullwhip effect will start sooner than the 70's. Brandon is going to be in for a very rough 2024 when CPI is creeping back up.

      What does this mean for i-bonds? Well I think the variable rate will be around 1.5% for Nov 2023...maybe lower. The fixed rate will go up too. By March 2024, the fixed rate will go down slightly and the variable rate will creep back up. Lets say you bought an i-Bond in Oct 2022. Oct 22-Mar 23 you got 9.62%. Apr 23-Sep 23 you will get 6.48%. Starting Oct 23 you will be getting 3.38%. I suggest you sell your i-Bonds in Jan 2024 and then RE-BUY with the current rate which will have a high fixed rate but low variable rate. You will be enjoying that high fixed rate when the higher variable rates start kicking in in 2024.

      I have three bonds. 1 in Mar 2022 and 2 in Apr 2022. So for all, I'm beyond the point where I am allowed to sell them. Right now, they are all earning 6.48% interest. Once they get into the 3.38% territory (Sep & Oct), they arent worth holding, except I don't want to give up on the 6.48% interest, so I will have to wait to sell them in Dec and Jan.

        • @guest_1608002 Sorry for the delayed response - life...kids. You know how it is.

          I told my colleague back before April? May? when he was asking for my advice on whether to allocate more of his 401k towards bonds. I told him not to and just leave it in stocks. CPI was going to come down, the stock market would react favorably to the idea that rate hikes would probably be stopping and maybe rate cuts would be coming, not to mention the fact that the bailout of the regional banks was essentially another form of QE. He thanks me every day for giving him that advice.

          Anyway, that aside. The other advice I gave him was "enjoy the party" for this year. I expected CPI to come down... 8 - 7 - 6 - 5 - 4 - 3 (which is what I told him). The thing I didn't expect was the CPI to go directly from 4 to 3. I expected an asymptotic approach towards the mid-low 3's (I told my colleague that I expected CPI to get to the low 3's and the fed would declare mission accomplished and that would be the new target inflation, up from the previous 2%'s). 3.0 was never on my mind. What I told him was that with CPI coming down, the market would react very favorably - dropping CPI = rate hikes will be declared to have worked, and therefore no more rate hikes would be necessary and possibly rate CUTS might be on the table. You can see that it is playing out that way - wooo boy the market responded crazy to the 3.0 print on the CPI. Crazy.

          So, in short, I see continued increase in the market for the rest of the year. By the end of the this year, though, I told him I would expect a return of inflation, i.e. the bullwhip effect (low rates = lots of money in the system, like we had thru 2021. People buy lots of stuff, putting stress on demand side of the equation, causing prices to increase, like we saw - lumber, cars, houses etc. Suppliers expect that the demand will continue at this pace so they order a TON of new stuff. When inflation hits and peoples buying power goes south, they buy less. Well the suppliers can't stop their orders, so now the supply side of the equation gets pressure and prices come down, again, like lumber, cars...but not housing of course. Inflation comes down, people start buying again, inflation goes back up. Its a cycle...the bullwhip effect). While the bullwhip effect will be a big part of it, you can see energy prices creeping up, another huge part of CPI (CPI has come down because energy prices have come down - in Aug 2022 natural gas hit $10/per whatever unit it is sold in. It is back under $3 right now...but it is creeping up!). Higher energy prices = higher transport/manufacturing costs, so stuff will get priced higher (remember back in 2008 when oil hit like $120 and they were talkin in the news about MILK having a new markup for gas prices of transport? Ridiculous. But its coming when oil gets back up there again. You may ask why that would happen? Well, look at the dollar index. The dollar index is in the toilet. Its at $99.75. Down from a high of $115ish only 8-9 months ago (if you want to understand why the dollar was so strong at the end of 2022 its two-fold: 1, rate hikes reduce the supply of money in the market making what is currently out there more valuable, and 2, international money poured into the dollar. Inflation was hitting every country in the world, especially South America, just the US wasn't AS bad. Yes 9% CPI sucks, but when your country's CPI is 15-20%, buying USD and losing 9% on your money isn't nearly as bad!). Since oil is MOSTLY priced in dollars, a weaker dollar = higher oil prices.

          It is very interesting to me that the market expects rate cuts when Powell, only a week prior to the CPI release (which I'm sure he knew about prior to its release), was saying we would need more rate hikes to tame inflation. Makes me think there is a disconnect between what the market reads and what is happening in the real world. The number of bankruptcies this year so far is the highest we've seen since 2010, and we are only halfway through the year (a lot of that has to do with high interest rates making it extremely challenging for new businesses to secure financing and cheap money - go search YouTube for videos from Mr. Wonderful Kevin O'Leary talking about this regarding his businesses). So enjoy the party for the rest of the year. Look to be in cash when CPI starts going back up.

          • Thank you for this! I keep kicking myself because I didn't throw more money into the stock market when the S&P500 went lower than 3600 last year.

      • yeah, good strategy if the fixed rate does go up in nov.
        i was an infant in the 70's, what effect did the oil embargo have on the bullwhip inflation? saudi's just tried to disrupt the market and it had no effect, plus tesla and EVs are going hyperbolic, nobody wants to store oil anymore when you can get 5% in treasuries, and fed is basically done like you said..

        • @guest_1608230 I think the oil embargo exacerbated the already prevalent inflation problem. The embargo started in Oct 1973. By that point CPI had jumped from 3% to 8%! The embargo ended in Mar 1974. So, there must have been a glut of oil by Nov 1974 when CPI peaked at 12.2%. Energy is a part of the CPI, so during the embargo energy prices must have crept up putting upward pressure on the CPI, and after building up a glut, it put downward pressure.

          We had something similar happen last year, which I think helped jump start the upward movement, that being the UKR-RUS war. Oil prices hit $120. I should note that while it sounded high and the MSM was sounding the alarm, inflation-adjusted that price was actual low - oil was $120ish in 2008 before the recession, which is approximately $160 inflation-adjusted. This is why gas prices didn't get nearly as high as they could have been. The national average gas price in Jul 08 was $4.114. Inflation adjusted that is $5.54. Average national gas price in Jun 2022 was "only" $5.03.

          Now, I thought, natural gas prices would have gone nuts. Prices did, but it was very brief. NG prices went over $9 (per whatever unit it is sold on the exchanges) in Aug 2022! I was blown away. But like I said, it was brief. Right now it is $2.22. The fall was very quick (certainly when compared with oil, which is still hovering at $70).

          CPI certainly has a portion of it which is directly correlated with nat gas & oil, but the effect of nat gas & oil is more felt indirectly. When oil goes up, it causes oil products, like petrol gas, to go up, which increases costs for people who rely on them to operate (farming, construction, etc.). When nat gas & oil prices increase the effects to the consumer won't be felt for probably 4-6 months (I'm not saying it IS the reason why nat/gas peaked in Jun-Aug and inflation peaked in Dec, but it makes me feel like its related with that timeframe...heh).

  • Should we sell our bonds since the US Federal Government is headed towards default?

  • april CPI numbers released today: .5% for the month, 4.9% for the year, putting the variable rate at 1.02% with five months to go

    • The balance of the ibond on the TD site is what you'd receive since the penalty is already figured in. What does this do differently?

  • So what happens to these if the US defaults on the debt? I don’t think it’ll happen, but if it does? Do these take a haircut, become worthless, nothing at all, or something else?

  • Torn on this.

    0.9% is high among I-Bonds rates.

    But 0.9% is so low that over 30 years it literally compounds to 30%.

    Will we see the 2.x% 3.x% fixed rates again if the current higher short term rates environment holds?

  • Presumably another interest rate hike next week. The Fed is going all gang-ho to combat inflation banking system be damned. Might be not the best time buy I-Bonds but one never knows.

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