With the November 2024 update, I bonds now carry: New Fixed Rate of 1.20%
While shorter-term bond yields have declined significantly since 2023, yields on longer-term bonds are trending higher as 2024 ends. Investors appear focused less on recent Federal Reserve (Fed) interest rate cuts, and more on continued solid economic data and inflation trends.
I Bonds offer a secure way to protect savings from inflation while earning a modest return. They may be particularly appealing to those seeking safety and government backing, as well as tax advantages. However, purchase limits, early withdrawal penalties and a long maturity period may make them less attractive to some.
I-bonds are just as good a deal now as they were 5 years ago, and it will be the same in 5 years. The only difference is that they compare more favorably to other risk-free investments now than they used to. They always cause you to lose buying power over any time period, depending on your tax rate.
The current I-bond rate, valid for bonds issued November 1, 2024 through April 30, 2025, is 3.11%. That includes a fixed rate of 1.20%. To put that in context, the best high-yield savings accounts and the best CD rates are giving returns over 5%. However, rate cuts have brought CD rates down from their high in 2024.
Purchase prices start at $25, and you can buy in any amount above that up to $10,000 per person, per calendar year. You also can buy an I bond in paper form, through the Tax Time Purchase Program.
Unlike I-bonds, TIPS are marketable securities and can be resold on the secondary market before maturity. When the TIPS matures, if the principal is higher than the original amount, you get the higher amount. If the principal is equal to or lower than the original amount, you get the higher original amount.
I bonds have earned their reputation as an inflation-fighting tool for retirees. As of May 2024, I bonds are returning 4.28%, which is lower than the same period in 2023 but still well ahead of the inflation rate of 3.5%. The previous I bond rate stood at 5.27%, set in November 2023.
Must I pay tax on what the bond earns? You choose whether to report each year's earnings or wait to report all the earnings when you get the money for the bond. If you use the money for qualified higher education expenses, you may not have to pay tax on the earnings.
Global growth forecasts are largely unchanged from last quarter, with the pace of economic expansion in 2024 slowing moderately in 2025. Easing inflation, resilient consumers, and a broadening of central bank rate cuts underpin our expectations for a soft landing.
Investment strategists surveyed by Bankrate see the 10-year Treasury yield at 4.14 percent at the end of December 2025. That's up from the third-quarter 2024 prediction of 3.53 percent, but still slightly under 4.53 percent, the current trailing-12-month yield of the 10-year Treasury.
If you hold the bond for less than five years at the time when you cash it in, you will lose the last three months of accrued interest. On the other hand, you can avoid the I Bond withdrawal penalty by holding onto your bonds for the long haul.
In 2024, we expect mid- to high-single-digit percentage value growth on most of the world's bond markets. Corporate bonds are likely to be more interesting than government bonds due to their yield pick-up and sound fundamentals. Investment grade (IG) has it all, offering interesting real yields and low default rates.
Cons of Buying I Bonds
You must create an account at TreasuryDirect to buy I bonds; they cannot be purchased through your custodian, online investment account, or local bank. Potential disadvantages include: Maximum investment each year is $10,000. Yield is taxed as ordinary income.
Designed for a retirement that's expected to last more than 25 years, this is for investors with a high capacity for risk: Cash: 8% of assets are kept in cash for years 1 and 2 of retirement. Bonds: 32% of assets are kept in bonds for years 3-10 of retirement.
A survivor is named on the bond(s)
If you are the named co-owner or beneficiary who inherits the bond, you have different options for paper EE or I bonds and paper HH bonds. If only one person is named on the bond and that person has died, the bond belongs to that person's estate.
A bond ladder may lower interest rate risk and reinvestment risk while giving the investor predictable cash flow. A fixed income ETF may be easier and less expensive than constructing a bond ladder, with the potential for greater diversification, price transparency, liquidity, and payment frequency.
Treasury bills function more like cash in your portfolio and can be a safe harbor during turbulent economic times. Treasury bonds can provide a dependable stream of income, but can suffer a loss of value on secondary markets if interest rates go up.
Normally, you're limited to purchasing $10,000 per person on electronic Series I bonds per year. However, the government allows those with a federal tax refund to invest up to $5,000 of that refund into paper I bonds. So most investors think their annual investment tops out at $15,000 – one of the key I bond myths.
I bonds have important tax advantages for owners. Interest earned on I bonds is exempt from state and local taxation. Also, owners can defer federal income tax on the accrued interest for up to 30 years.
Boost Your Annual Investment With Your Spouse—But Not Your Kids. As mentioned, anyone with a Social Security number can purchase I bonds. This means that for a married couple, the annual limit is effectively raised to $20,000 since each spouse can buy $10,000 worth of bonds.