Update 12/13/22: Reminder – the last chance to buy I Bonds toward your 2022 $10,000 allotment will be on Thursday December 29th. After that, we can begin buying our $10,000 allotment for 2023. (Tangentially, lots of people are reporting that the process for adding a second bank can now be done easily through the online login without the old onerous process of mailing in a form.)
Original Post 11/1/22:
U.S. Treasury Direct officially announced the 6.48% I Bonds rate for November 2022 – April 2023. This was widely reported before the official announcement today.
They also announced a fixed rate of .40% for I Bonds. This means that if you buy I Bonds now you’ll get 6.89% return whereas if you bought last month you’d get only a 6.48% return (when that rate kicks in). The 6.48% rate is called the ‘annualized rate’ which changes twicer per year and the .40% rate is called the ‘fixed rate’ which doesn’t change and gets added on top.
What’s nice about the fixed rate is that it continues for the entire 30-year term of the I Bonds. Someone can buy I Bonds anytime from November 2022 through April 2023 and get an extra .40% return on these I Bonds purchased for the next 30 years. For example, suppose the next I Bonds rate (beginning May 2023) will be 9.50%, you’ll get 9.90%. And suppose the rate after that (beginning November 2023) is 2.00%, you’ll get 2.40%. Etc, etc.
In recent history the fixed rate has always been a big fat zero, until this new announcement. However, some people have older I Bonds from many years back which have a fixed rate, and they’ve been getting their fixed rates added to the high I Bonds returns of late.
Did I make a mistake buying in late October at the 9.62% rate?
Lots of us are wondering whether locking in the 9.62% rate was smart since it means that when the 6.48% rate kicks in we’ll earn .40% less than those who buy in November. This is something we discussed in our I Bond post analyzing the 9.62% and 6.48% rates (at the time, guesses were a fixed rate of either zero or between .1% – .5%).
Indeed, given the .40% fixed rate, someone who will end up holding the I Bonds for 30 years (or perhaps even 10 years or less) might have done better not buying at the 9.62% rate.
However, for those who think it’s likely they’ll cash out the I Bond in a year, or even in 5 years, you were probably better off buying at the old rate due to the front-loaded increased earnings from the 9.62% rate. (I’ll let someone very math inclined crunch the numbers on exactly what the cutoff point is. 🙂 I believe it also depends on future I Bond rates, so not necessarily easy to compute.)
Our Verdict
Regardless, the news of this fixed .40% is interesting for those who have not yet purchased their 2022 $10,000 limit. And it’s interesting for all of us who plan on purchasing an additional $10,000 in I Bonds when our annual limit resets in January 2023. Aside from the 6.48% and future rates, we’ll get a .40% fixed rate added to all future I Bond earnings.
