Interest Rates on Individual Government Bonds Reach the 2% Range – Fixed 5-Year or Variable 10-Year? Comparing Interest on 1 Million, 3 Million, and 5 Million Yen
Introduction
Hello, this is the Aimura Research Institute.
This article is for those who are interested in the interest rates of individual government bonds, or those who are unsure whether to choose the fixed 5-year or variable 10-year option.
The individual government bonds for the October 2026 offering announced by the Ministry of Finance have reached the 2% range for all three types, with the fixed 5-year at 2.39% per annum, the variable 10-year at 2.05% per annum, and the fixed 3-year at 2.07% per annum.
While individual government bonds have an image of being “safe but low-interest,” once they rise to the 2% range, they become an option worth considering even for those who haven’t paid attention to them before.
However, it does not necessarily mean you should simply choose the one with the highest current interest rate among the three.
How much interest can you actually receive on 1 million yen, and what are the differences between the fixed 5-year, variable 10-year, and fixed 3-year?
What is the point of choosing them over bank deposits, and how should you think about the current rise in interest rates if you already own government bonds?
In this article, we will examine the details that go beyond the news that “interest rates have exceeded 2%” by looking at the actual numbers one by one.
Chapter 1: Individual Government Bonds Reach the 2% Range – Interest on 1 Million, 3 Million, and 5 Million Yen
So, when the interest rate on individual government bonds reaches the 2% range, how much interest can you actually receive?
First, let’s check the interest rates for the October 2026 offering.
According to the issuance terms announced by the Ministry of Finance on October 7, 2026, the fixed 5-year is 2.39% per annum, the variable 10-year is 2.05% per annum, and the fixed 3-year is 2.07% per annum.
All three types have reached the 2% range per annum.
The subscription period is from October 8 to October 30, 2026, and the issue date is November 16.
In the first place, individual government bonds are bonds where individuals lend money to the government and receive interest in return.
According to the Ministry of Finance, they can be purchased from 10,000 yen in 10,000 yen increments, and interest is paid every six months.
All three types are issued every month, and even if interest rates drop significantly, a minimum interest rate of 0.05% per annum is set.
With the fixed 5-year, which currently has the highest interest rate at **2.39% per annum**, the pre-tax interest for one year on 1 million yen is:
1 million yen × 2.39% = 23,900 yen
is.
However, you will not receive the full 23,900 yen.
Interest on government bonds is subject to a total tax of 20.315%, consisting of 15.315% for income tax and special reconstruction income tax, and 5% for local tax.
However, there is an important exception.
Furthermore, this is a separate quota from the 3.5 million yen allowed under the standard Maruyu system for savings and deposits.
Therefore, assuming standard taxation, the annual rate after tax is approximately 1.9045%.
For 1 million yen, the after-tax interest equivalent to one year is approximately 19,045 yen.
For 3 million yen, it is approximately 57,134 yen.
For 5 million yen, it is approximately 95,224 yen.
However, you do not actually receive the full year’s interest at once.
The interest payment dates for the 187th issue of 5-year fixed bonds are May 15 and November 15 each year, twice a year, so for a standard six-month period, the pre-tax interest per 1 million yen is
1 million yen × 2.39% ÷ 2 = 11,950 yen
.
After tax, this is equivalent to approximately 9,522 yen.
For 3 million yen, it is equivalent to approximately 28,567 yen in six months, and for 5 million yen, approximately 47,612 yen.
There is one thing to note here.
For the October 2026 offering, the issue date is November 16, but the first interest payment date is May 15 of the following year.
According to the Ministry of Finance’s calculation rules for initial interest, if a bond is issued after the 15th, the first interest payment is calculated based on the actual holding period.
This time, it is one day shorter than a standard six-month period, so the first interest payment will also be reduced by one day’s worth.
When estimating based on those rules, the after-tax interest if held to maturity for a 5-year fixed bond is approximately 95,171 yen for 1 million yen, approximately 285,514 yen for 3 million yen, and approximately 475,857 yen for 5 million yen.
Since the actual amount received may vary slightly due to tax calculations and rounding for each payment, please view these as estimates.
Individual government bonds also differ from bank deposits in the mechanisms that support their safety.
On the other hand, individual government bonds are government bonds where the Japanese government pays the principal and interest, so there is no protection limit like “up to 10 million yen per financial institution” as seen with deposits.
This difference is important when considering where to place safe assets exceeding 10 million yen.
However, this does not mean that “government bonds are absolutely safe,” but rather that the mechanism supporting the principal and interest is different from that of bank deposits.
Also, interest on individual government bonds is paid every six months, and the interest received is not automatically added to the principal of the government bond.
Therefore, while some time deposits are compound interest products that add interest to the principal to calculate the next interest payment, when comparing interest on individual government bonds, it is necessary to note that they are not products that automatically grow with compound interest.
Regarding the 2% range interest rate on individual government bonds, it is important to look at “how much you can actually receive” and “what mechanism protects your assets” as a set.
Chapter 2: Fixed 5-Year, Variable 10-Year, or Fixed 3-Year—Which One Should You Choose?
For the October 2026 offering, the fixed 5-year is 2.39% per annum, the fixed 3-year is 2.07% per annum, and the variable 10-year is 2.05% per annum for the first period..
Looking only at the numbers, one might want to choose the highest, the fixed 5-year, but the three types differ not only in duration but also in how the interest rate is determined.
First, let’s clarify “why the fixed 5-year is higher than the variable 10-year even though it is 10 years.”
According to the Ministry of Finance, for the October 2026 offering, the fixed 5-year is 2.39% (2.44% base rate minus 0.05%), and the fixed 3-year is 2.07% (2.10% minus 0.03%).
The variable 10-year is 3.10% base rate × 0.66 = 2.046%, which is rounded using a prescribed method to 2.05%.
The “base rate” is the foundation for determining the interest rate of individual government bonds, but the three products refer to different base rates and use different calculation methods.
Therefore, “it is 10 years, so the interest rate is higher than the 5-year” is not necessarily true.
There is also a meaning behind the “× 0.66” for the variable 10-year.
The Ministry of Finance explains that this mechanism was adopted by comprehensively considering the balance with interest income if a 10-year fixed-rate government bond were held for 10 years, as well as the product feature that allows for mid-term redemption.
The important thing is that the rise in market interest rates is not directly added to the variable 10-year interest rate as is.
For example, if the base interest rate rises by 0.30 points from 3.10% to 3.40%, in a simple calculation,
0.30% × 0.66 = 0.198%
which means the impact on the applicable interest rate is approximately 0.20 points.
For the variable 10-year bond offered in October 2021, when interest rates were low, the base interest rate was 0.05%, and because the calculation result was below the minimum interest rate, the initial applicable interest rate was 0.05% per annum.
The October 2026 offering is 2.05% per annum, and the interest rate environment has changed significantly from a few years ago.
However, this is a comparison between initial interest rates at the time of new issuance, and it does not mean that the interest rate of a government bond purchased in 2021 has simply become 2.05%.
So, how much would the variable 10-year rate need to rise to catch up with the fixed 5-year rate?
First, looking only at the applicable interest rate at that time,
2.39% ÷ 0.66 = approximately 3.62%
so if the base interest rate for the variable 10-year bond reaches approximately 3.62%, it will be at roughly the same level as the 2.39% for the fixed 5-year bond.
This is an increase of approximately 0.52 points from the current 3.10%.
However, this does not mean that “if it reaches 3.62%, the variable 10-year bond is more profitable.”
Because the fixed 5-year bond receives interest at 2.39% during that period as well, even if the variable 10-year bond catches up to 2.39% along the way, the interest difference from before that point remains.
Therefore, let’s compare investing 1 million yen for 5 years.
For a 5-year fixed bond at 2.39%, the pre-tax interest for 5 years is, in a simple calculation,
1 million yen × 2.39% × 5 years = 119,500 yen
.
If the variable 10-year bond stays at 2.05% for all 5 years,
1 million yen × 2.05% × 5 years = 102,500 yen
So, the difference up to this point is 17,000 yen.
However, to compare over the same 5-year period, you must also consider the mid-term redemption adjustment amount.
The fixed 5-year bond matures in 5 years, but the variable 10-year bond still has 5 years remaining, so to finish in 5 years, you must redeem it early.
Individual government bonds can generally be redeemed early after one year has passed since issuance, but in that case, the amount equivalent to the two most recent interest payments (before tax) × 0.79685 will be deducted.
Since interest is paid every six months, the two most recent payments cover approximately the last year.
0.79685 is the figure that reflects the 20.315% tax on interest, calculated as
1 – 0.20315 = 0.79685
.
Therefore, it is easier to understand if you think of early redemption as deducting an amount roughly equivalent to the after-tax interest for the most recent year.
If the variable 10-year bond stays at 2.05% for all 5 years, you would subtract the mid-term redemption adjustment of approximately 16,335 yen from the 1 million yen after-tax interest of approximately 81,700 yen, leaving a net interest of approximately 65,342 yen.
Compared to the approximately 95,224 yen earned by holding the 2.39% fixed 5-year bond until maturity, there is a difference of about 30,000 yen under these conditions.
So, how much would the variable 10-year rate need to rise to catch up?
Let’s consider a simple scenario where the rate is 2.05% for the first year, the same rate continues for the next 4 years, and you redeem early after 5 years.
Since the interest for the 5th year is deducted as the mid-term redemption adjustment, the effective comparison is:
2.05% for the first year + interest for the following 3 years
becomes the total.
For the 5-year fixed bond, the 5-year total is:
2.39% × 5 years = 11.95%
so,
2.05% + 3 years × subsequent interest rate = 11.95%
The interest rate that satisfies this is 3.30% per annum.
Under these conditions, if the first year is 2.05% and the following four years continue at **3.30% per annum**, it will be roughly on par with the fixed 5-year bond.
This is not a future forecast, but rather a simplified calculation where the results actually change based on the semi-annual interest rates and the rates of the two most recent periods at the time of early redemption.
For the floating 10-year bond, if market interest rates rise, the interest received will increase with semi-annual reviews, and if they fall, the applicable rate will also decrease, but there is a minimum interest rate of 0.05% per annum.
Consider the difference as: if you want to lock in the current 2.39% per annum for 5 years, choose the fixed 5-year; if you want to capture future interest rate changes, choose the floating 10-year.
You do not need to put the entire amount into one or the other; for example, if you split 1 million yen into 500,000 yen each, you can divide your money between securing the current interest rate and capturing future interest rate changes.
Regarding the fixed 3-year bond, it is also important not to judge based solely on the nominal interest rate.
The October 2026 offering is fixed 3-year at 2.07% and fixed 5-year at 2.39%, but even if you are investing for 3 years, the fixed 5-year is not necessarily more advantageous.
If you hold 1 million yen in a fixed 3-year bond at 2.07% until maturity in 3 years, the pre-tax interest is,
1 million yen × 2.07% × 3 years = 62,100 yen
and the post-tax amount is approximately 49,484 yen.
The post-tax interest for holding a fixed 5-year bond at 2.39% for 3 years is approximately 57,134 yen, but if you redeem it early after 3 years, approximately 19,045 yen, equivalent to the most recent year’s interest, will be deducted as an early redemption adjustment amount.
Therefore, the interest remaining in your hand is,
approximately 57,134 yen – approximately 19,045 yen = approximately 38,089 yen
.
Under these conditions, holding the fixed 3-year bond until maturity leaves you with approximately 11,395 yen more.
In other words, even if the nominal interest rate is higher, redeeming early does not necessarily mean it will be more advantageous.
If you have decided to use the money in 3 years, compare the actual amounts after early redemption for the fixed 3-year and fixed 5-year bonds; if you do not plan to use it for 5 years and want to lock in the current interest rate, consider the fixed 5-year—you need to make a decision that includes the timing of when you will use the money.
For the three products in October 2026, the basic approach is not to simply choose the highest interest rate, but to choose based on “how many years you will hold it” and “whether you want to fix the interest rate or capture future changes”.
Chapter 3: It’s Not Just Individual Government Bonds – How Are They Different from New Over-the-Counter Government Bonds?
In addition to Japanese Government Bonds for Individuals, there are also “New Window-Sold Government Bonds” available for individuals to purchase.
According to the Ministry of Finance, New Window-Sold Government Bonds are products that make it easier to purchase standard government bonds at financial institution counters, and their structure differs from that of government bonds for individuals.
Government bonds for individuals can be purchased starting from 10,000 yen in 10,000-yen increments, and come in 10-year variable, 5-year fixed, and 3-year fixed terms.
New Window-Sold Government Bonds can be purchased starting from 50,000 yen in 50,000-yen increments, and all three types—10-year fixed, 5-year fixed, and 2-year fixed—are fixed-rate, meaning the interest rate received does not change even if market interest rates fluctuate after purchase.
More importantly, there is the mechanism for cashing out early.
In principle, once one year has passed since issuance, government bonds for individuals can be cashed out early by the government after deducting a specified early redemption adjustment amount.
New Window-Sold Government Bonds do not have this system, and if you wish to cash them out before maturity, you must sell them at the market price.
For example, if the face value is 1 million yen, you will receive 1 million yen back at maturity, but if you sell early, the amount may be less than 1 million yen or more than the purchase price, depending on the market price.
This does not mean the government cannot repay the principal, but rather that selling at market price before maturity results in a profit or loss.
The Ministry of Finance explains that if market interest rates rise after purchase, the market price of existing government bonds may fall.
For example, if you hold a bond with a 2% annual interest rate and new bonds with a 3% annual interest rate become available, the previous 2% bonds will be harder to sell unless their price is lowered.
Conversely, if market interest rates fall, the market price of existing bonds with higher interest rates may rise.
As of October 7, 2026, the coupon rate for the 10-year New Window-Sold Government Bond issued in October 2026 is 3.1% per annum.
While this looks higher than the 2.39% for 5-year fixed, 2.05% for 10-year variable, and 2.07% for 3-year fixed government bonds for individuals, they cannot be compared based on coupon rate alone.
The 10-year New Window-Sold Government Bond is purchased at 100.39 yen per 100 yen of face value, so for a face value of 1 million yen, the purchase price is 1,003,900 yen in simple terms, but the face value returned at maturity is 1 million yen.
Including this difference, the yield to maturity is 3.048% per annum.
The coupon rate indicates how much interest is paid annually relative to the face value, while the yield to maturity is the rate of return that accounts for the difference between the actual purchase price and the amount returned at maturity, so both must be checked for New Window-Sold Government Bonds.
The 2-year New Window-Sold Government Bond issued in October 2026 has a coupon rate of 2.0%, an issue price of 100.14 yen per 100 yen of face value, and a yield to maturity of 1.923%.
The terms for the 5-year New Window-Sold Government Bond for October 2026 are scheduled to be announced on October 15, and since they were undecided as of October 7, the September interest rate cannot be compared as the October interest rate.
If you have decided that you will “not use the money for 10 years and hold until maturity,” there is no need to sell at the market price, so the interest rate of the 10-year New Window-Sold Government Bond becomes a factor for consideration.
On the other hand, if there is a possibility that you will need the money in a few years, you may have to sell at a market price lower than the purchase price, resulting in a loss.
Individual government bonds also cannot generally be redeemed early for one year after issuance, but after that, you can use the government’s early redemption system instead of selling at market price.
Therefore, if there is a possibility you will need the funds midway and want to avoid principal loss due to a drop in market price, individual government bonds are an option; if you can hold until maturity, new over-the-counter government bonds are also an option, so you should make your decision based not only on the interest rate but also on when you might need the funds.
Chapter 4: Should I Switch Out of Low-Interest Individual Government Bonds Bought in the Past?
As individual government bond interest rates rise to the 2% range, the question arises: “Is it more profitable to sell bonds bought during the low-interest era and switch to the current higher rates?”
In conclusion, there are cases where switching is more advantageous if you have a 5-year or 3-year fixed-rate bond.
However, please check whether the bond you currently hold is a fixed-rate type or a 10-year floating-rate type.
According to the Ministry of Finance, the interest rate for 5-year and 3-year fixed-rate bonds is set at the time of purchase and does not change until maturity.
If you bought a 5-year fixed-rate bond at 0.05% per annum, even if new 5-year fixed-rate bonds exceed 2% later, the bond you hold remains at 0.05% per annum.
On the other hand, for 10-year floating-rate bonds, the applicable interest rate is reviewed every six months based on prevailing market rates, so just because you bought it a few years ago does not mean the low interest rate at the time of purchase will continue for 10 years.
Therefore, for 10-year floating-rate bonds, the first step is to check the current applicable interest rate.
You can check the holdings and amounts of the issues you own through your financial institution’s transaction balance report or passbook.
Let’s consider a 5-year fixed-rate bond actually issued during the low-interest era.
The 138th 5-year fixed-rate bond offered in September 2022 had a base rate of 0.03% per annum, so the minimum interest rate was applied, and it was issued at 0.05% per annum.
The issue date was October 17, 2022, and the maturity date is October 15, 2027.
If you hold 1 million yen of this government bond, the annual pre-tax interest is:
1,000,000 yen × 0.05% = 500 yen
And after tax, it is approximately 398 yen.
In contrast, the 187th 5-year fixed-rate bond offered in October 2026 is 2.39% per annum, so for 1 million yen, the annual pre-tax interest is 23,900 yen, and after tax, it is approximately 19,045 yen.
The difference in annual after-tax interest is approximately 18,646 yen.
However, to switch, you must perform an early redemption of your old government bonds.
Individual government bonds can generally be redeemed early one year after issuance but the amount equivalent to the last two interest payments (before tax) × 0.79685 will be deducted as an early redemption adjustment amount.
If you hold 1 million yen in a 5-year fixed bond at 0.05% per annum, the early redemption adjustment amount is,
500 yen × 0.79685 = approximately 398 yen
.
The basic formula for the early redemption amount provided by the Ministry of Finance is,
Face value + accrued interest equivalent – early redemption adjustment amount
so this does not mean that “redeeming 1 million yen early will result in a significant loss of principal.”
Since the difference in annual after-tax interest between the old 0.05% fixed 5-year bond and the new 2.39% fixed 5-year bond is approximately 18,646 yen,
398 yen ÷ 18,646 yen = approximately 0.021 years
which, in a simple calculation prorating the annual interest rate difference, corresponds to about 8 days’ worth.
This does not mean that actual interest will be paid in 8 days, but is a guideline for the economic recovery period viewed from the interest rate difference.
For fixed-rate bonds in a low-interest era, you should not assume that “early redemption is a loss, so I will keep holding them,” but rather compare the adjustment amount with the interest difference after switching.
However, you should not judge based solely on the recovery period.
The 138th issue of the 5-year fixed bond will mature on October 15, 2027, but the new 5-year fixed bond offered in October 2026 will be issued on November 16, 2026.
Since individual government bonds generally cannot be redeemed early for one year after issuance, if you switch to the new 5-year fixed bond, you will generally not be able to redeem it until November 2027.
While the old government bond would have matured in October 2027, switching pushes the time you can freely use the funds back by about one month.
For example, if you plan to use 1 million yen in October 2027, even if switching is advantageous in terms of interest rate difference, you will not be able to redeem the new government bond when you need it.
Conversely, if you do not plan to use the funds at that time and can hold them for several years thereafter, it is worth comparing holding the 0.05% fixed-rate bond until maturity versus switching to the current higher interest rate.
When considering a switch, check in the following order.
1. Do you hold a fixed-rate bond or a variable 10-year bond?
2. What is the current applicable interest rate?
3. What is the mid-term redemption adjustment amount?
4. If you switch to a new government bond, how much will the annual after-tax interest increase?
5. How many days or months will it take to recover the mid-term redemption adjustment amount with the increased interest?
6. After purchasing the new government bond, will you be in trouble if you cannot redeem it for one year?
By checking these six items, you can make a decision based on actual amounts rather than choosing between ‘sell because it’s an old bond’ or ‘don’t sell because mid-term redemption results in a loss’.
On the other hand, since the applicable interest rate for variable 10-year bonds is reviewed every six months, even those purchased during a low-interest-rate era have a mechanism to capture subsequent interest rate increases to some extent.
If you repurchase a new variable 10-year bond thinking, ‘The interest rate must be low because I bought it a long time ago,’ the mid-term redemption adjustment amount will be deducted, and the one-year restriction on mid-term redemption after issuance will also begin again.
While it is a different matter if you are changing the product itself, such as switching from a fixed-rate to a variable-rate bond, it is important to check the current applicable interest rate and make a decision rather than repurchasing simply because it is ‘old’.
Summary
The October 2026 offering includes fixed 5-year at 2.39%, variable 10-year at 2.05%, and fixed 3-year at 2.07%, but choosing the highest interest rate is not necessarily the best option.
The fixed 5-year is an option if you want to lock in the current interest rate for five years, the variable 10-year is for when you want to capture future interest rate changes, and the fixed 3-year is for when you plan to use the money in three years.
Including new over-the-counter government bonds and individual government bonds for mid-term redemption, it is important to decide ‘when you will use this money’ and compare the actual amount remaining in your hands with the redemption conditions.
Note that starting from the December 2026 offering (January 2027 issuance), ‘Individual Government Bonds’ will be renamed to ‘Individual Government Bonds Plus’ and sales are scheduled to expand to some corporations, but the lineup of variable 10-year, fixed 5-year, and fixed 3-year bonds, as well as the basic product characteristics, will not change.
Even if the name changes, individuals can continue to purchase them.