[Repost] New U.S. Treasury I Bonds 6.49% Rate, FAQ (When To Buy $10,000 I Bonds? 6.48%? 9.62%? And More…)

(Update 11/1/22: The actual I Bonds rate for November 2022 through April 2023 is 6.89%. We discuss this further in this dedicated post. What follows below is our write-up from October 2022 before the rate was officially announced.)

We’ve written a number of times over the past year about I Bonds. The news broke over the past couple of weeks that the upcoming I Bonds rate for November will be 6.48%. Until the end of October the 9.62% rate will continue. 

There’s only a few days left to lock in the 9.62% rate for 6 months. If you don’t yet have a Treasury Direct account, you’ll definitely want to begin that process immediately in case something doesn’t work properly. Those who already have a Treasury account will want to max out their $10,000 for the year in the next few days before the weekend. (A lot of us already maxed out our 2022 limit of $10,000 when purchasing earlier this year.) The last moment to submit a purchase order and get the 9.62% rate is October 28 at 11:59pm ET. (source)

You can read most of the basic facts about I Bonds in our original post. The post below is a different format in Q&A style. It’s adapted to the current situation with the 9.62% and 6.48% rates to make it easier for readers to following along and decide whether and when to buy. (We did the same thing 6 months ago for the 7.12/9.62% rates.)

You can also see more discussion on I bonds in the comments of our previous posts: Original post | FAQ post from earlier this year | I Bond gifting post.

• Should I buy now or in November? And, if the rate is changing on November 1st, does that mean I’ll only get a week of the 9.62% rate?

So long as your purchase completes before October 31 you’ll get a full 6 months of the 9.62% rate. Then you’ll get the lower-but-still-excellent 6.42% rate for 6 months. We don’t know what the rates will be after that, it’ll be tied to inflation reports.

So you’ll want to buy now before the end of October to lock in the 9.62% rate. You’ll get the 9.62% rate for October, November, December, January, February, March. Then you’ll get 6.48% for April, May, June, July, August, September.

(Parenthetically, when you buy I Bonds in mid-month you get interest as if you bought at the beginning of the month. Whether you buy the 1st or the 29th or anywhere in between, you’ll get a full month of interest for that month.)

• Maybe inflation will go even higher and the rate will go higher in the future? Should I wait to buy?

I certainly hope inflation doesn’t go higher! In any case, you aren’t losing anything by locking in the rate now since you can always leave the money in the bond for longer and get that future potentially-higher rate.

(A note for those knowledgeable or those want to get more confused: every I Bond rate is comprised of a fixed interest rate and a variable rate which changes every 6 months. Currently the fixed rate is 0%. However, there is some speculation, based on various factors, that in November there might be a fixed rate on I Bonds as well. It’ll probably be a small amount, like .1% or .5%, but that fixed amount is something that gets added onto your I Bonds rates forever, regardless of the variable rate which changes every 6 months. Someone who plans on holding their purchased I Bonds for decades might do better waiting to buy until November since they’ll get decades of that small fixed rate added, albeit while losing the six months of 9.62%. Again, my personal recommendation for just about anyone is to buy now and lock in the 9.62% rate. Just want to add this note for completeness.)

• How do you know the rate will be 6.48%? I only see the 9.62% on the Treasury site?

The rate won’t come out officially from the feds until November 1st. I haven’t worked out the inflation numbers myself, but the smart people figured out that the new November rate will be 6.48%.

• If I buy $10,000 before the end of October to get the 9.62% rate, will I be able to cash out $962 in profit one year from now?

No, the 9.62% rate is only valid for six months. If you buy the I Bonds now in October, you’ll get 9.62% for 6 months and then 6.48% for 6 months. That’s a blended rate of around 8.05% for 12 months.

However, it’s not that simple: you lose 3 months of interest if you break the bond in less than 5 years. And so, if you’re thinking short term, the plan here would be to deposit $10,000 now in October and keep it there for 15 months, until January 1, 2024. You’ll get 6 months of 9.62%, 6 months of 6.48%, and 0% for October, November, and December of 2023. I believe that comes out to around 6.44% APR/APY  for the entire 15 month time-period. Pretty good for a guaranteed investment!

In the end, you should land up with around $805 net gain after 15 months from the $10,000 bond purchase. It’ll actually be around $820 due to compounding.

• Is it worth the hassle to open a Treasury Direct account for just $820?

At lower rates I wouldn’t bother, but at these increased rates I find it worth the trouble. There’s also a chance the high inflation numbers will continue and you’ll end up getting more than one year of nice returns.

• Is my money locked up or can I withdraw at any time?

These funds are absolutely locked up for 12 months. Think of it like a 12-month CD with no ability to withdraw. After 12-months you can withdraw and swallow a 3-month penalty. If you withdraw after 5 years there is no longer any penalty. The bond fully matures and stops earning interest after 30 years.

• I’m confused about the 6 month renewal period.

The rate gets renewed every six months on May 1st and November 1st. But you get the new rate on your own bonds beginning whenever your own six month time period renews. You get the rate for the following six months.

As an example, if you buy any time during the month of January, you’ll get the November-April rate for January, February, March, April, May, and June. Then you’ll get the May-October rate for July, August, September, October, November, December. Then you’ll get the November-April rate for January, February, etc, and so on.

Another example: if you buy during the month of April, you’ll get the November-April rate for April, May, June, July, August, September. Then you’ll get the May-October rate for October, November, December, January, February, March. Then you’ll get the November-April rate for April, May, etc, and so on.

• I’m confused about how to actually go about buying I Bonds?

Open an account with Treasury Direct at this link. (You can also go to the TreasuryDirect.gov home page and click Open Account on the right-hand side.) Go through the signup process. Once in your Treasury Direct account, go to the Buy Direct tab at the top of the page, then choose the Bonds ‘Series I’ option.

People complain a lot about how difficult the signup and login process is with the site, and the Treasury has promised an update. To be honest it’s not really that bad, just a little different than we’re used to. Mentally slot out a few minutes and you’ll be fine.

There are also sporadic complaints of needing special manual verification. Most people are verified in the automated process, and they’ve recently made the verification process easier. Give yourself some extra time just in case.

• Okay, I’m in! Is there any way I can purchase more than $10,000?

Yes, we wrote about many ways to lock in the rate on more than $10,000:

• Each spouse can buy $10,000, even if you file taxes jointly.
• You can buy $10,000 for a child. More details here.
• You can buy a separate $10,000 for your business EIN. If you have more than one business, you can get $10,000 for each.
• You can get an additional $5,000 as your tax overpayment refund if you have one (use form 8888 when filing). This one is a bit of a pain since it comes as paper bonds which can then be combined with your electronic I Bonds account.
• You can buy a separate $10,000 for a trust. I don’t know how difficult it is to open a trust, but it’s certainly a useful option for someone who already has one.
• You can gift I Bonds to someone which they can receive a different year and lock in the current rate. For example, you and your spouse can each buy each other $10,000 or $20,000 and lock in the current rate for 2023 and 2024. Please read the following post to learn more: Gifting US Treasury Bonds To Lock In Current Rates Beyond $10,000 Limit (I Bonds) and see the IRS video tutorial on this here.

Altogether you can accumulate a bundle.

• I bought $10,000 back in October 2021 at the 3.54% rate, which seemed high at the time. Will I still get the 9.62% and 6.48% rates or did I lose out?

Sure, just leave the bonds in without cashing them out and you’ll continue to get the new rates of 9.62%, 6.48% and beyond. You’ll get 3.54% for October 2021 through March 2022, then 7.12% for April 2022 through September 2022, then 9.62% for October 2022 through March 2023, then 6.48% for April 2023 through September 2023. You never lose anything by buying at the earlier rate so long as you keep the bonds in with Treasury Direct. It auto-renews at the new rate for up to 30 years unless you manually cash out the bond.

Bonus FAQ’s

• Does the name on the funding bank account have to match the name on the Treasury account? Can we have two Treasury accounts linked to the same joint bank account?

I don’t know if there is any official word on this from the Treasury. Anecdotally, we’ve heard many many reports of two spouses who have separate Treasury accounts and link it to the same joint bank account.

I’ve also seen reports of linking an account in a different name or linking a business Treasury account to a personal bank.

Tangentially, be sure to link a bank account that you plan on having for the long term since it’s a pain to deal with switching.

• Can I open a Treasury account with a defunct EIN which isn’t in use?

I haven’t seen anything official from the Treasury, and my understanding is that it would be perfectly fine to do so.

Whenever you cash out the bond you’ll get a tax form 1099 to the business EIN. Assuming the business is a sole proprietorship, I believe the income just flows through to your personal return. I.e. you won’t have to pay for a separate business tax return to be done and it’ll be basically similar to having another form 1099 under your personal name. That’s what I think, but please consult a tax advisor on this first.

• Do I pay taxes on the interest earned from I Bonds?

Yes, you’ll get a tax form 1099-INT when the bond gets cashed out. This allows you to defer taxes until the bond matures after 30 years. (You can also elect to pay taxes each year, if you choose. But by default you’ll get taxed when the bond is cashed out, and that’s how most people do it.)

You only pay federal tax on the interest, not state or local taxes. There are ways of exempting yourself entirely from federal taxes if the funds are used for certain higher education expenses.

• Will my Treasury account show the balance increase each month?

The interest does show up monthly, but that starts only after the fourth month. This is because there is a 3-month penalty for withdrawals before 5 years. Note: While interest shows each month, it only compounds in 6-month increments.