With the November 2024 update, I bonds now carry: New Fixed Rate of 1.20%
The 4.28% composite rate for I bonds issued from May 2024 through October 2024 applies for the first six months after the issue date. The composite rate combines a 1.30% fixed rate of return with the 2.96% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).
The headline benefit of I-bonds is the fact that their rates adjust for inflation, which is a massive advantage during periods of high inflation, although it becomes a disadvantage during periods of low inflation or deflation.
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.
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.
Securities purchased through TreasuryDirect cannot be sold in the secondary market before they mature. This lack of liquidity could be a disadvantage for investors who may need to access their investment capital before the securities' maturity.
Investment products that are not deposits, such as mutual funds, annuities, life insurance policies and stocks and bonds, are not covered by FDIC deposit insurance. See “Financial Products that Are Not Insured by the FDIC” for more information about uninsured financial products.
Real Estate. Like precious metals, real estate is a tangible asset that tends to hold value during prevalent inflation. As prices rise, so do property values and rents, increasing the amount of rental income earned along with the book value of property.
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.
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.
Treasury bills, or bills, are typically issued at a discount from the par amount (also called face value). For example, if you buy a $1,000 bill at a price per $100 of $99.986111, then you would pay $999.86 ($1,000 x . 99986111 = $999.86111).
The 3.11% composite rate for I bonds issued from November 2024 through April 2025 applies for the first six months after the issue date. The composite rate combines a 1.20% fixed rate of return with the 1.90% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).
So if you are a longer-term investor, it may be worthwhile to redeem your old I Bond and re-purchase a new one to lock in the higher fixed rate. Shorter term investors should think about cashing in their I Bond at the 12 or 15-month mark.
Many investments have been historically viewed as hedges—or protection—against inflation. These include real estate, commodities, and certain types of stocks and bonds. Commodities include raw materials and agricultural products like oil, copper, cotton, soybeans, and orange juice.
Three of the most commonly traded commodities include oil, gold, and base metals.
The worst assets to own during inflation. Money in bank accounts or under your mattress loses value rapidly. Bonds, especially those with fixed returns in the inflated currency, suffer too.
Cons of Buying I Bonds
Potential disadvantages include: Maximum investment each year is $10,000. Yield is taxed as ordinary income. Must open a TreasuryDirect account to buy and sell.
Millionaires don't worry about FDIC insurance. Their money is held in their name and not the name of the custodial private bank. Other millionaires have safe deposit boxes full of cash denominated in many different currencies.
The FDIC insures up to $250,000 per account holder, insured bank and ownership category in the event of bank failure. If you have more than $250,000 in the bank, or you're approaching that amount, you may want to structure your accounts to make sure your funds are covered.
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.
Entities with extra cash buy treasury bonds. When no one buys them anymore, we will reduce the national debt. Treasury bonds were part of a system set up by Hamilton to get loans from people in order to fund the government.
TreasuryDirect is free. There are no fees, no matter how much or how little you invest. You may hold both savings bonds and Treasury marketable securities in TreasuryDirect. Your securities in TreasuryDirect are electronic, so you don't have to worry about them getting lost, stolen, or damaged.