I Bond Rates 2024: Here’s How Much You Can Make With I Bonds (2024)

Though not as exciting as the best stocks, Series I bonds have become popular in recent years as inflation has soared. I bonds are a low-risk investment option and a great way to diversify your investment portfolio and hedge against inflation. The current I bond rate is 5.27% for bonds issued between November 1, 2023, and April 30, 2024.

However, I bonds do come with withdrawal restrictions, and there’s a price limit on how much you can purchase each year. Before buying I bonds, it’s crucial to understand how they work and the pros and cons of this investment strategy.

Vault’s Viewpoint

• The current I bond interest rate is 5.27% for bonds issued between November 1, 2023, and April 30, 2024.
• Bonds are a low-risk investment strategy and can protect your savings from inflation.
• Bonds come with withdrawal restrictions and may not be the best choice when inflation is low.

How Do Series I Bonds Work?

Series I savings bonds—commonly referred to as I bonds—are a type of savings bond that’s tied to inflation. The bonds are issued with a 30-year final maturity, and you’ll continue to earn interest until it reaches 30 years old or you cash out the bond.

The interest earned on I bonds is a combination of a fixed interest rate and an inflation rate. The U.S. Treasury announces the fixed rate and the inflation rate every May 1 and November 1. Once you buy the bond, the fixed rate stays the same for the life of the bond, while the inflation rate updates every six months.

The inflation rate is based on changes to the Consumer Price Index for all Urban Consumers for items like food, apparel and transportation. That means if inflation is unusually high, the combined rate will increase. But the opposite is true as well—deflation can lower the combined rate below your fixed interest rate.

I bonds earn interest monthly, and interest is compounded semiannually. So every six months, you’ll see the new interest added to your principal value; your bond’s value continues to grow as it earns interest and the principal increases.

What Are the Benefits of Purchasing I Bonds?

There are many good reasons to invest in I bonds, especially since the combined rate you receive is guaranteed for the first six months. Here are some other benefits of purchasing I bonds:

• Potential for high interest rate: When inflation is high, you have the potential to earn a competitive interest rate.
• Inflation protection: Since the inflation rate is based on the Consumer Price Index for All Urban Consumers, it protects your savings during periods of high inflation.
• Low risk: I bonds are backed by the U.S. Treasury, so you can count on receiving your interest payments on time and getting your principal back after cashing out.
• Diversify your portfolio: If you’re invested heavily in the stock market, I bonds are a good way to diversify your portfolio.

What Are the Drawbacks of Purchasing I Bonds?

No investment strategy is right for everyone, and I bonds are no exception. Although they do tend to be a low-risk investment, you’ll have no idea what your I bonds interest rate will be after six months.

Here are the biggest downsides to consider before investing in I bonds:

• Withdrawal limitations: After you buy bonds, you don’t have the option to cash out for at least a year. And if you cash out before five years, you’ll lose the last three months in interest payments. For example, if you cash out a bond after 18 months, you’ll only be paid for 15 months of interest. I bonds are best for investors who don’t plan to touch the money for a long time.
• Interest is taxable: Any interest you earn on I bonds is subject to federal income taxes. If you have a high income, this could be higher than the capital gains tax.
• Investment limits: Direct I bonds are limited to $10,000 per person, per year. You can purchase an additional $5,000 in paper bonds per year if you pay for them with your tax refund.
• Interest rate could drop: I bonds are a great way to protect your savings from inflation. But if inflation drops, your interest rates will also go down, limiting your potential returns.

How to Buy I Bonds

The easiest way to buy I bonds is by setting up a TreasuryDirect account. You’ll start by choosing the type of account you’re opening and providing the following information:

• Social Security number
• Email address
• Bank account
• Routing number

Once your account is approved, you can log in and choose the “BuyDirect” tab, followed by “Series I.” You’ll choose your purchase amount and payment method and complete the purchase. Remember, you’re only allowed to buy up to $10,000 in I bonds per year.

You can continue to monitor how much interest you’ve earned through your TreasuryDirect account. After 12 months, you can also use this account to cash out your bonds.

Using Your Tax Refund to Buy I Bonds

If you’re due for a tax refund, you can use some or all of this money to purchase I bonds. You don’t have to open a TreasuryDirect account first—you’ll just have to file Form 888 with Form 1040.

Once you file Form 888, your paper bonds will be mailed to you. Here are a few things to keep in mind about using your tax refund to buy I bonds:

• You’re only allowed to use your tax refund to purchase up to $5,000 in paper bonds.
• If you file a joint tax return, the bonds will be issued to you and your spouse.
• You can use your tax return to buy I bonds for another person, like a family member.
• If you buy I bonds for another person, make sure you use that person’s name on Form 888.

I Bonds vs. EE Bonds

Series I and EE bonds are both popular U.S. savings bonds because they come with very little risk, and you’re almost guaranteed to earn a return on your investment. EE bonds are the safer option, and the Treasury guarantees that after 20 years, the value will be double what you initially paid.

However, EE bonds don’t provide the same protection from inflation that you get by purchasing I bonds. Here are the biggest differences between these two savings bonds: