Though the potential return of U.S. Treasury I-bonds as a long-term investment is no sure thing, Americans have voted for them with their wallets: Billions of dollars of these formerly obscure securities were sold in 2022, including in a last-minute rush at the end of October of that year to capture the 9.62% rate. The demand was so robust it knocked the TreasuryDirect website, the only place these bonds can be bought, offline at times.
Of course, you can get them just fine today, now that the current I-bond rate is down. The rate is set every six months, in May and November, and is made up of two components. One is based on the government’s consumer price index (CPI), and given that inflation has slowed since 2022, the rate for I-bonds has also slowed, but it is still an attractive prospect in certain lights.
The other component of the I-bond return is a fixed rate — picked by the Treasury Department without further explanation — that will only apply to bonds issued May 1 to Oct. 31, 2024. And that fixed rate is, well, fixed — unlike the variable inflation component, whatever the fixed rate was when the bond was issued, you’ll get paid that for as long as you hold the bond (and the term is 30 years).
The current I-bond rate, valid for bonds issued May 1 through Oct. 31, 2024, is 4.28%. That includes a fixed rate of 1.30%. To put that in context, the best high-yield savings accounts and the best CD rates are giving returns over 5%. Halfway into 2024, the S&P 500 has had a year-to-date return of 16.84%, making analysts' top S&P 500 stocks to buy an attractive option.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
So, 4.28% is not all that much to write home about. But I-bonds are still on the table because they offer stability and a guarantee.
What makes the current I-bond rate attractive
Consider the fixed rate of an I-bond, which is an important component of what an I-bond is. That rate is fixed for as long as you hold the bond, which has a term of 30 years. So, if you purchase an I-bond between now and November, you'll always get a return of at least 1.30%. Again, that's not a huge return, but it's a guarantee — and considering that people's most popular investment is cash, 1.30% for 30 years is a much higher return than you might get with cash just sitting in a checking account.
So here’s an interesting twist, and possibly a consolation prize for anyone who didn’t manage to get I-bonds when they were paying a higher yield in 2022: those bonds paid a fixed rate of zero.
While it might seem unimaginable now as the Federal Reserve has continued to hold short-term interest rates high and other rates, including mortgages, have climbed to levels not seen in decades, zero inflation or deflation could return. And if that happens, those who hold bonds bought between now and Oct. 31 will continue to receive 1.30% interest, while holders of the 9.62% bonds will receive — at least so long as inflation is flat or negative — nothing.
And, again, if 1.30% seems laughably low, remember that only a few years ago, savers looking to certificates of deposit, savings accounts and other low-risk investments would have been darn happy with that.
What to do with your I-bonds
First, I-bonds must be held for at least a year. There is no way to cash them before this period. And second, if you redeem them before five years from the time they were issued, the last three months of interest is lost.
Another key note: There’s a limit of $10,000 a year to how much you can buy in I-bonds. But, you can also get $5,000 in I-bonds if you use your tax return to buy them, and those bonds will be issued in cash.
In case you haven't noticed, I-bonds are a little complicated. Ultimately, though, for the moment, they present a reasonably attractive long-term option for safe cash growth.
Related Content
-
Want to Earn $1 Million More Over Your Lifetime? Do ThisIt's simple: Go to college or a trade school. It's an investment that will pay huge dividends for the rest of your life. And the benefits go far beyond money.
-
What Impact Does Politics Have on Insurance?Some governors choose their state's insurance commissioner, while other states elect theirs, and that person has power over insurance issues, including rates.
-
Stock Market Today: Dow Outperforms After IBM EarningsInvestors also parsed a strong reading on second-quarter GDP and a dismal decline in durable goods.
-
The 6 to 1 Grocery Method Can Save You Time and MoneyThe 6 to 1 Grocery Method can help you save money, reduce waste and eat healthier.
-
Ford Stock Plunges on Earnings Miss: What to KnowFord stock is down big Thursday after the automaker fell short of earnings expectations for its second quarter. Here's what you need to know.
-
What IBM's New Free Cash Flow Forecast Means for InvestorsIBM stock is higher Thursday after the tech giant beat Q2 earnings expectations and raised its free cash flow guidance. Here's what you need to know.
-
Is Chipotle Stock Still a Buy After Earnings?Chipotle stock is extending its recent slide despite a Q2 earnings beat, leaving some folks to wonder if it's still a buy. Here's what you need to know.
-
Why This Economist Thinks the Fed Is Already Late to Cut RatesMoody's Analytics chief economist Mark Zandi talks to Kiplinger about what he thinks the Federal Reserve is getting wrong on inflation.
-
Visa Is the Worst Dow Stock Wednesday. Here's WhyVisa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
-
Tesla Stock: Another Analyst Moves to the Sidelines After EarningsTesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
