November 1, 2024. Series EE savings bonds issued November 2024 through April 2025 will earn an annual fixed rate of 2.60% and Series I savings bonds will earn a composite rate of 3.11%, a portion of which is indexed to inflation every six months. The EE bond fixed rate applies to a bond's 20-year original maturity.
What Are I-Bonds? A new rate was announced on November 1, 2023. The current composite rate on bonds issued from November 2023 to April 2024 is 5.27%. This includes a fixed rate of 1.30% (for the life of the bond) and a semiannual (1/2 year) inflation rate of 1.97%.
This composite rate of 3.11% applied to $10,000 in I bonds, would earn a guaranteed $155.50 in interest over the next six months (not $311, that's because it's an annualized rate) — but you cannot cash in your bond until you've held it for a year. So why even mention the six-month take?
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).
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.
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.
As the chart below demonstrates, the short-term correlation between actual bank rates and bond yields (which move inversely to bond prices) is low. As interest rates were rising in the first half of 2023, bond yields rose, but the grey-shaded area shows how yields fell significantly while rates remained flat.
On the other hand, you can avoid the I Bond withdrawal penalty by holding onto your bonds for the long haul. As long as you've owned the bonds for at least 5 years, there will be no penalty when you cash out.
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.
Although experts optimistically predicted rates would fall close to 6% by the end of 2024, projections have changed significantly. Fannie Mae now expects average 30-year fixed mortgage rates to hold above 6.5% until early 2025.
Cons of I Bonds
This cap makes I Bonds unsuitable for those looking to invest larger sums. Early withdrawal penalty: If you cash in your I Bonds before five years have passed, you lose the last three months of earned interest. This penalty may impact liquidity for those who need their funds sooner.
The U.S. Department of the Treasury has announced new Series I bond rates. Linked to inflation, newly purchased I bonds will pay 3.11% annual interest from November 1 through April 30, 2025, which is down from the 4.28% yield offered since May and the 5.27% yield rate offered in November 2023.
U.S. high-yield bonds saw their highest quarterly total return since Q2 2020 (+9.5%) and sixth-highest quarterly return on record as tighter spreads and lower U.S. Treasury rates drove bond prices higher.
Fed interest rate moves are often seen as a signal to bond investors, and beginning in 2022, yields on bonds across the board rose as the Fed raised the fed funds target rate from near 0% to a peak of 5.50%. In October 2023, 10-year Treasury yields topped out near 5%.
Despite 2 cuts in the short-term fed funds rate and the likelihood of more to come, 10-year Treasury bonds yield more as of December 3, 2024, than they did at the beginning of the year.
Against this backdrop, the MPC decided to reduce the policy rate by 25 basis points, to 7.75%, with effect from 22 November 2024. The decision was unanimous.
If you want to keep all your good interest and get the most out of your I Bonds you should cash out: after earning 3 months of lower interest and. just after the 1st of the month.
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.
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.
You can get your cash for an EE or I savings bond any time after you have owned it for 1 year. However, the longer you hold the bond, the more it earns for you (for up to 30 years for an EE or I bond). Also, if you cash in the bond in less than 5 years, you lose the last 3 months of interest.