Inflation and interest rates make i-bonds attractive again for savings, but wait until November

Inflation is up, mortage rates are up, gas prices are up, and so are interest rates paid on savings. An important component of the new interest rates for federal i-bonds, coming in November, could be among the highest in decades. File Starting in November, an important part of the interest rate that determines how much money people earn from federal Series I Savings Bonds — i-bonds — is expected to be among the highest in more than 20 years. No matter what happens with interest rates going forward, that would be a good opportunity for savers to lock in an attractive rate on their savings for up to 30 years. I’ll explain why. I-bonds can not only protect savings from losing value due to inflation, but can beat inflation depending on when they are purchased. Inflation and interest rates are considerably higher than they were early this year, and the new i-bond rates take effect Nov. 1. Think of i-bonds as being similar to bank certificates of deposit in many ways, but with tax advantages and more rules. For those not familiar with i-bonds, here are the basics: That last point brings us to what’s expected in November. Both the fixed rate and variable rate for i-bond interest will re-set on Nov. 1, and it’s the fixed rate that’s expected to be among the highest seen in more than two decades, tipswatch.com predicts. Back in late 2021 and early 2022 there was a frenzy to buy i-bonds because the variable interest rate spiked to 7.12 percent (annualized) in November 2021, and then hit 9.62 percent in May 2022. That was a great opportunity at the time, but it’s important to know that the fixed interest rate for those bonds was zero, so the variable interest rate accounted for all of the interest. So, going forward people who owned those bonds would earn less interest than anyone who bought more recently-issued i-bonds that did included a fixed interest component. Anyone who buys an i-bond right now would likely earn less interest every year than someone who waits until November. To illustrate, from May of 2020 through October of 2022 the i-bond fixed rate was zero. After that, it varied from 0.4 to 1.3 percent (it’s currently 0.9). Those lucky enough to have bought i-bonds in 1998 through early 2001 got fixed rates between 3 and 3.4 percent — for as long as they owned those bonds, up to 30 years, in addition to the variable-rate interest. What all that means is that right now, people with i-bonds are earning an annualized interest rate as high as 6.8 percent and as low as 3.34 percent, depending on when they bought them. The fixed rate accounts for all of the difference. That’s why the fixed rate is so important. Tipswatch.com is forecasting a 1.3 percent fixed rate for November, which would tie for the second-highest in more than 20 years. All i-bond holders get the most recent variable rate, but the fixed rate is locked in when they are purchased. That’s why I advised in 2023 that anyone holding i-bonds with a zero fixed rate should sell them and purchase new i-bonds that include a fixed rate. With the unusual way i-bonds work, there’s no rush to buy them in November. Anyone who buys an i-bond between Nov. 1 and the end of April — because rates reset on May 1 — would get the new interest rate for six months, and then the variable rate would change every six months but the fixed rate would not change. And here’s a tip: i-bonds earn interest from the first day of the month they are purchased, so if you buy one late in a month you get that entire month’s interest.