We wrote about the upcoming increase in I Bonds rate for May – October to earn 9.62%. The reason is that U.S. Treasury I Bonds interest rate is tied to inflation which shot up lately. It’s not fun that to pay more for goods and services, but we might as well take advantage where we can and lock in $10,000 at the upcoming 9.62% interest rate.
All the necessary information on I Bonds can be found in original post, but I thought to use a different format and address some issues in question/answer format. Below are some Frequently Asked Questions about I Bond, including the most common on whether to buy now in April or wait until May.
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You say the rate is increasing in May so why the hurry to buy now in April?
The rate for November 2021 – April 30 2022 is also historically high at 7.12%. You’ll want to buy up I Bonds before the end of April (give yourself a few days leeway) and lock in both the 7.12% rate and the subsequent 9.62% rate. You’ll get 7.12% for April, May, June, July, August, September. Then you’ll get the 9.62% rate for your October renewal which will be valid for October, November, December, January, February, March.
(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.)
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Maybe inflation will continue and the rate will go up more at the next renewal?
It is possible, though I certainly hope not! In any case, you aren’t losing anything by locking up this high 7.12% rate now since you can always leave the money in the bond for longer and get that future potentially-higher rate. (Unless we see record inflation forever…let’s hope not.)
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How do you know the rate will be 9.62%? I only see the 7.12% on the Treasury site?
The rate won’t come out officially from the feds until May 1st. I haven’t worked out the inflation numbers myself, but the smart people figured out that the new May rate will be 9.62%.
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9.62%…Does that mean if I buy $10,000 I’ll 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 April, you’ll get 7.12% for 6 months and then 9.62% for 6 months = a blended rate of around 8.37% for 12 months.
However, it’s not so simple since 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 April and keep it there for 15 months, until July 1, 2023. You’ll get 6 months of 7.12%, 6 months of 9.62%, and 0% for April, May, and June of 2023. I believe that comes out to around 6.70% APR/APY for the entire 15 month time-period. Pretty good for a guaranteed investment!
In the end, you should land up with around $837 net gain after 15 months from the $10,000 bond purchase. It should actually be more like $853 due to compounding.
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Is it worth the hassle for $853?
At lower rates I wouldn’t bother, but at these increased rates I personally find it worth the trouble.
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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.
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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 link both of your Treasury accounts to the same joint checking account, per many reports. Or even account in one of your names, per this report.)
- You can buy $10,000 for a child.
- 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. 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. Please read the following post to learn more: Gifting US Treasury Bonds To Lock In Current Rates Beyond $10,000 Limit (I Bonds)
Altogether you can accumulate a bundle.
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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% rate at renewal?
Sure, just leave the funds in for an extra 6 months and you’ll get the 9.62% rate. 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. (Don’t break the bond until at least July 1, 2023 to avoid penalty on the high 9.62% rate.) You didn’t lose anything by buying at the earlier rate.
If you haven’t done so yet, you can also buy another $10,000 now in 2022. As noted above, you should buy now in April and lock in 6 months of 7.12% and then 6 months of 9.62%.
