New I-Bonds Rate 4.28% APY (Variable + Fixed); Should We Buy Or Sell?

(Update 5/2/24: Rate ends up being 4.28% total: 2.98% variable and 1.30% fixed. This is roughly the numbers discussed in the post, below, which was written before we had the final numbers.)

We’ve been reporting on the twice-per-year I Bond rate releases. The new rate for May through October 2024 is slated to be 2.96%, based on inflation reports. Additionally, guesses/predictions are that the fixed rate will be around 1.30%. That gives a total rate of around 4.30% for 6 months.

What This Means

What this means: If you already own I Bonds and keep them, you’ll get just 2.96% interest rate for the six month rate period of May 2024 through October 2024. (The exception to that would be if you get a fixed rate from a previous buy in which case it would be higher.) If you buy new I Bonds (or I Bond gift box) between May 2024 and October 2024, you’ll likely get around 4.30% for the first six months (2.96% + 1.30%). After the six months is over, you’ll probably get around 1.30% added to any future variable rate.

For comparison sake: the current rate which runs November 2023 through April 2024 is 5.27% – that comes from a 1.30% fixed rate and 3.97% variable rate.

Should You Buy I Bonds?

Should you buy I-Bonds now at the 5.27% rate? 

Personally, at the current rates, I wouldn’t buy now for the purpose of getting a good interest rate over the next year or two. In the short term, the 5.27% rate is not much better than US treasuries or the best high yield accounts are getting. And the subsequent 4.27% rate, along with a 3 month penalty, doesn’t look too attractive. (Of course we are just spitballing here since we don’t know what high yield savings accounts will be 6 months from now.)

I’d primarily consider buying for the long-term play of having 1.30% locked-in above inflation. In recent years we haven’t seen any sort of fixed rates being offered at all, and getting a 1.30% secured above inflation for the long haul can be interesting as part of a diversified portfolio. I Bonds can even be a sort of long-term emergency fund (just bear in mind that the first 12 months the money is inaccessible). 

Someone who feels confident that they’ll be holding cash for the long term at regular interest rates might considering buying I Bonds now to lock a guaranteed 1.30% rate above inflation.

Should You Buy I Bonds Now?

If you decide to buy I Bonds (see above), should you buy now or wait until the rate resets in May?

If you want to buy, it would seem better to buy now instead of waiting for later in the year. While the fixed rate might be similar in May, the variable rate will be lower. It could make sense to lock in 6 months at the respectable 5.27% rate.

If you already get 5%+ in your savings account, it might not be a major gain to switch to I Bonds. Someone who wants the 1.30% fixed rate as a long term investment, but wants to punt the decision for later, might consider waiting until October and buying then. Since the estimated upcoming fixed rate is estimated to be about the same, there probably won’t be a long term loss in waiting.

Note, however, we probably won’t get official word on what the fixed rate will be until after it’s too late to buy at current rates. And so ultimately, a lot of people who are interested in the long term I Bonds investment will prefer locking in the current high 1.3% fixed rate now.

Should You Sell I Bonds Now?

A lot of us have older I Bonds with no fixed interest rate. We’re just getting the variable rates on those older investments, as they come out each 6 months.

Someone who is holding older I Bonds, and does not want to increase their overall I Bonds holdings. Should they sell off the older ones and buy in at the new rate which includes the extra 1.30% fixed component? Yes, in most instances you’ll probably want to that.

There are lots of factors that gone into this, most importantly the 3 month penalty assessed for cashing out in less than 5 years:

  • Someone who bought I Bonds in the past few years will probably prefer to swallow the 3 month penalty and lock in the extra 1.3% fixed rate.
  • Someone who is close to the 5-year mark has a tougher decision. Anyone with I Bonds more than 5 years old that has no fixed rate will most likely want to cash out the old ones and buy new. Just don’t forget about the $10,000 annual limit! You don’t want to sell off $20,000 if you can only buy back $10,000 (see some tricks here).

List of Past I-Bonds Rates

For context, here is a review of past I Bond rates that many of us bought into:
    Chuck
  • On May 2, 2024, 13:00
Tags: bonds

View Comments (84)

  • I'm keeping some I-Bonds as part of an overall portfolio. The alternative for something inflation protected are TIPS. The main advantage I see of I-Bonds is they essentially have a built in put option in that the value can't drop below face value, unlike TIPS. The downside is the limit on how much you can buy yearly.

    • Plus, you can choose when to sell, which allows you to harvest taxable gains on your own timeline.

  • *to the tune of Should I Stay or Should I Go, by The Clash*
    
    ♫ Should We Buy or Should we Sell ♪

  • I have been buying JPM callable 1 yr CDs since they hit 5.6 / 5.7 (down to 5.4 now) from Fidelity. The goal is to lock in 6 months high yield, as the first callable schedule date is on 7th month and can only exercise once each subsequent month (par call).
    So far JPM exercised once on a 5.6 on the 7th month back in first half of Apr when the June rate cut was on the card.
    Ever since no exercise on the remaining CDs - one 5.7 starts its 8th month now. The iBond even when avg the 5.27 and current 4.98 is NOT attractive when you have to pay 3 months penalty.

    Currently Fidelity's Sweep funds in brokerage account has 4.99 7 days yield, and the US Government fund that one can buy (and it is the default sweep in IRA account) is at 5.15. They are liquid, no loss of interest. I dont see why people still need to hunt around.
    17wk T Bill yesterday auction reach 5.412%. That is a 2024 high. The sweet spots in T Bill are the 13 wk and 17 wk. Buy them thru brokerage account, you can sell in the secondary market should you need the fund, else let them run to maturity. Far less hassle.

    • Question: If you sell the T Bill in the secondary market before maturity, is the transaction reported under the 1099-B at year-end? If so, is the gain (difference between cost and sale proceeds) reported as capital gain or interest in your tax return? I understand if you hold the T bill to the maturity, the difference between the redemption value and the cost is reported as interest under 1099-Int. Thanks.

    • Your objectives and those of others may not be the same. There are many reasons I-Bonds can be advantageous, and this article doesn't get into much of that.

      For example, no state income tax. Deferring taxes (e.g. cashing them out in later years when you expect your income to be much lower for whatever reason, or to avoid losing tax credits...avoiding the $11k interest cap before you lose a lot of tax benefits, etc.). T-Bills can provide some of that, but only up to a year, and the auction dates are sporadic.

      You also can get a free month's worth of interest if you buy an I-Bond near the end of the month.

      There are a myriad of reasons besides just the raw interest rate that factor into an investment decision.

        • Not sure what KE is talking about, but there is an 11k cap on investment income (interest, dividend, and capital gains) for the EITC.

      • Yeah, deferred taxes is an important property. Are there other similar low risk investments that have this property?

        • Yes, there are multi-year guaranteed annuities (MYGA). They are very similar to a CD, except taxes on the earned interest can be deferred for several years - until the annuity matures. In order to keep the annuity safe, keep your purchase amount below the maximum limit of coverage offered by your state's Insurance Guaranty Association.
          https://smartasset.com/retirement/myga
          https://www.nolhga.com/home.cfm
          Many MYGA's come without fees, like CD's. MYGA's are available with terms from 2 years to 10 years. MYGA's interest rates can be 1%-2% higher than CD's of the same duration.

          • Thanks Mike. Very useful. I didn't know about it. I now found a whole DoC thread about MYGAs.

          • I ladder them, like a CD ladder. Some in my name, some in spouse's name, and at different insurance companies. By doing it this way, all are insured by my state's Insurance Guaranty Association. Note - every state has this, but coverage limits, etc. can vary by state.

      • So very well said. Being able to defer taxes until retirement is a major reason I plan on growing and holding my I-bonds long term. No state income tax is just cherry on top.

        • It will be $11.6k this coming year, but was $11k in 2023. As someone mentioned, this is the cap for the EITC. There are also other caps, like the Saver's Credit, that phase out at relatively low income thresholds. Deferred claiming of this income, if you don't need the cash now, allows you to maximize these credits and potentially save several $k a year.

    • On Fidelity's website, the 26-week T-Bill maturing 11/06/2024 is expected to have a yield of 5.375%.

      The 12 month JPM one-year CD is at 5.4%.

      Which is the better investment?

  • My December 2023 and January 2024 iBonds are showing 5.27% today. So, July 1st and August 1st, my rates will go down to 4.28%. Correct?

    • 6 months is June and July for December 1 and January 1 issue dates I think.

    • @guest_1838996 With an expense ratio of .38%, does that put the actual yield at 5.85%?

      • yeah, i believe it should hover around 5.70 to 5.90'ish after it's all said and done.

        there's also fluctuations and dependence on how high interest rates stay for.

        • Careful with this one...I wondered how they could offer such a premium over other treasury funds when they hold 98% treasuries. Looking at the one year chart, the monthly price pattern has dropped by about .7% while something like SGOV is up .1%...

          You might end up taking a capital loss when you eventually exit, wiping out much of the extra earnings over SGOV. And if you held it for more than a year you can only harvest that loss to offset gains taxed at the lower long term capital gains rate.

          • @guest_1831502

            yeah, there's i believe 98% treasuries and 2% is for the selling/purchasing S&P put options to generate the additional income.

            Generally, the best time to get in would be post payout date so your general entry point is mostly protected.

        • I was told by several people that the expense ratio is already baked into the figures provided for money market funds (ie PVOXX). Is it different for ETFs?

          • I believe it's a daily deduction and goes off of your total balance.

            Even if the expense ratio is baked in (yield minus ER), it's taken out from the NAV of the fund on a daily/weekly basis.

  • If I buy today 4/29 will it count with the 5.27 interest rate? Or because it takes 2 business days to process my purchase will fall under May rates?

    • Yes, it would have gotten 5.27%, as most TD transactions process next business day. That rate expires at 11:59ET tonight, but it's too late to buy in now.

      The new rate for purchases through Oct 2024 is 4.28% (includes fixed rate of 1.30 %). Tipswatch guy called it again!
      @6

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