I Bonds Are About to Pay Their Highest Fixed Rate in 20 Years. Here’s Why All Income Investors Should Pay Attention on Nov. 1

On Nov. 1, the Treasury will announce new interest rates for Series I savings bonds, better known as I bonds. This might not sound like a big deal to most investors, but there’s a good reason anyone who invests for income should pay attention. Specifically, the new I Bond interest rate is likely to be the most attractive we’ve seen in almost 20 years.

What we already know about I Bond rates

If you aren’t familiar with how I Bonds work, their interest rates have two parts. There’s an inflation adjustment that resets every six months. For bonds bought from May through October 2026, the inflation adjustment was 3.34%, but based on recent inflation data, it should be 4.08% when the new rates are announced. This rate will apply to bonds bought from November through April, and will be fixed for six months from the date of purchase.

The other part of the interest rate is a fixed rate, and that’s the one to watch. This is the rate that stays with the bond for its entire 30-year life, and it is essentially a guaranteed rate of return above whatever the future inflation rate is. In a nutshell, if you lock in a relatively high fixed rate, you can guarantee that your I Bonds will produce positive real returns while you own them, as long as you hold at least five years (there’s an interest penalty if you cash in sooner).

The current I Bond fixed rate is 0.90%. But analysts believe that the new fixed rate will be in the 1.30%-1.40% range, based on inflation-protected Treasury yields.

Two key points:

• This (1.40%) would be the highest fixed rate since November 2006.
• New I Bonds bought from November through April 2027 would pay about 5.5% for the first six months.

Why income investors should pay attention

First of all, this is an important benchmark for income investors to watch. An inflation-protected 5.5% starting yield is more than you’d get from T-bills or the 10-year Treasury, and it’s also worth noting that I Bond interest is exempt from state and local taxes.

Second, although I Bonds aren’t the right investment for everyone, they can be excellent additions to income portfolios, especially when the fixed rate is relatively high. To be sure, there are some drawbacks. You can buy only $10,000 in I Bonds per person per year, and they can’t be cashed in for 12 months. But for an inflation-protected cash reserve that you aren’t going to need anytime soon, they can be an excellent income investment.

The bottom line is that the Nov. 1 announcement will set the price of inflation-protected, guaranteed income for the next six months, as well as the fixed spread you’ll get on top of any future inflation adjustments for the next 30 years.