Here's why the Treasury I bond's lower rate is still 'significant’

The historically high interest rate on the Treasury I bond reset lower this week as expected, but a key component of the new rate is materially better.

The rate on the popular inflation-protected I bonds — one of the safest investments you can buy — slipped to 6.89% through April 2023 from 9.62%, according to the Treasury Department. That’s still the fifth-highest rate since the bond’s introduction in 1998, according to Treasury data.

The new composite rate combines a 6.48% annualized rate of inflation (or a 3.24% six-month rate) with a 0.40% fixed rate of return, the latter of which is up from a 0.00% fixed rate.

“The new fixed rate is significant,” Jean Fullerton, a fee-only financial advisor at Milestone Financial Planning, told Yahoo Money. “What makes the current I bond interest rate particularly attractive is the 0.4% fixed rate, which means that for the 30-year life of the bond, you will not only keep up with inflation, but receive 0.4% above the inflation rate. This is very unusual. It has only been this high one year — in 2019 — in the past 14 years.”

How the rate is calculated

The I bond rate is made up of the fixed rate, which applies for the 30-year-life of the bond, and a semiannual inflation rate calculated from a formula based on the six-month change in the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items. From March 2022 to September 2022, the CPI-U had a six-month bump of 3.24%.


Then, those two rates are plugged into the following formula to come up with the composite rate:

[Fixed Rate + (2 x Semiannual Inflation Rate) + (Fixed Rate x Semiannual Inflation Rate)]

The new 6.89% rate locks in for the six months after it’s issued. New rates are set every May and November by the Treasury Department.

“This is still a good deal and better than bank CDs,” said Ken Tumin, a senior industry analyst at LendingTree and founder of, who also called the new fixed rate “significant improvement.”

“This year’s large decline in stocks, bonds, and alternative investments have made the safety and inflation protection of I bonds especially attractive,” he added.

How to purchase I bonds

US Savings Bonds. Savings bonds are debt securities issued by the U.S. Department of the Treasury. They are issued in Series EE or Series I.
The rate on the popular inflation-protected I bonds — one of the safest investments you can buy — slipped to 6.89% through April 2023 from 9.62, according to the Treasury Department. (Photo credit: Getty Creative) (jetcityimage via Getty Images)

You can buy I bonds with no fee from the U.S. Treasury’s website, TreasuryDirect. In general, you can only purchase up to $10,000 in I bonds each calendar year. But there are ways to pump up that sum. For example, you can direct your federal tax refund to buy an additional $5,000 in I bonds.

The bonds are sold in increments of $25 or more when you buy them electronically. Paper bonds are sold in five denominations: $50, $100, $200, $500, and $1,000.

They earn interest for 30 years or until they’re cashed in, whichever comes first. The bonds are government-backed and guaranteed to keep pace with inflation because their return is tied to the Consumer Price Index, and the interest is generally free from state and local taxes.

You might be able to completely or partially exclude savings bond interest from federal income tax when you pay qualified higher education expenses at an eligible institution or state tuition plan in the same calendar year you redeem eligible I bonds. See IRS Publication 970 “Tax Benefits for Education.”

Restrictions apply

You need to hold them for at least a year, and you'll forfeit a quarter's worth of interest if you redeem an I bond before five years.

Moreover, you can't buy I bonds within a traditional IRA, Roth IRA, or employer-sponsored savings plan, such as a 401(k) plan. So you'll need to buy I bonds with savings outside of these programs.

There are ways to ramp up your I bond allotment. If you’re self-employed, your company, or Limited Liability Corporation (LLC) can purchase up to $10,000 worth of I bonds a year. The business typically must have its own account and a taxpayer identification number.

Meantime, you can buy I bonds as a present for your children if they’re under 18, provided you create a minor-linked TreasuryDirect account. You and your spouse can each buy up to an additional $10,000 of I bonds for each one. You can keep the bonds in your account until you're ready to deliver them, say, as a holiday gift this year. Not the pizzazz of a Lego set or a Play-Doh Kitchen Creations Ultimate Ice Cream Truck, but, hey, one day they will thank you.

Who should consider

United States Treasury Department Building in Washington, DC
United States Treasury Department Building in Washington, DC (pabradyphoto via Getty Images)

While the rate is not one to set your heart a patter, many financial advisors are still on board.

“It’s a great rate that’s difficult to match elsewhere in the market,” Justin D. Smith, a financial advisor with Savant Wealth Management, told Yahoo Money.

Generally speaking, investors looking to invest in I bonds should only invest money that they do not have an immediate need for. “This isn't the place for an emergency fund,” Stephan Shipe, a certified financial planner at Scholar Financial Advising, told Yahoo Money. “The I-bond rate is still higher than treasuries and CDs, but it is not as liquid and the website is far from being user friendly.”

For instance, in the final days of October, as investors rushed to scoop up the previous higher rate before it disappeared, the site struggled to meet the demand, and “slowed intermittently, but never went dark,” John Rizzo, Treasury senior spokesperson, told Yahoo Money. Ultimately, many wannabe purchasers, however, were unable to buy the bonds before the deadline.

“This is a 20-year-old application and was not created to handle the kind of demand it saw,” Rizzo said. “We are in the process of updating it. The server capacity has already been tripled and the number of individuals handling the phones doubled.”

The site closed “for maintenance” over the weekend and re-opened on Monday, but the TreasuryDirect application that is the gateway for all purchases was unavailable again this morning.

Aside from the hassles of the website, you’ve got to respect the guard rails.

“Ultimately your investment decision will depend on your risk tolerance and the limits unique to I bond rules,” Gillian McCarthy, a certified financial planner with Great Oak Wealth Management, told Yahoo Money. “For now, I bonds are an intriguing possibility for investors looking for a low-risk investment to help combat inflationary pressures.”

Kerry is a Senior Columnist and Senior Reporter at Yahoo Money. Follow her on Twitter @kerryhannon

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