I Bonds

This page is for discussion of I Bonds which are issued by the U.S. treasury.

I Bonds have a ‘fixed rate’ portion and an additional portion which is adjusted twice per year at a rate dependent upon the rate of inflation.

The current interest rate on the bonds is 7.12% through 4/30/2022 after which they will adjust for the next 6 months. It is estimated that the new interest rate will be in the 9.5% area.

You can buy these bonds on the Treasury Direct site — here. All the details are on this page and there are penalties for early withdrawal so make sure you check out the details.

You may purchase up to $10,000 annually – a couple can have 2 accounts and buy $20,000 total.

230 thoughts on “I Bonds”

  1. 5 months into next 6 month cycle….
    CPI-U Data and May 2023 Inflation Rate Trend

    September 2022 CPI-U: 296.808
    February 2023 CPI-U: 300.840
    May 2023 Inflation Rate Trend: 3.26%
    *May 2023 Inflation Rate Trend = [(300.840/296.808)^(6/5)-1]*2 = 3.26%
    So if you are tracking if purchased today 6.89% for 6 months and 3.66% (.4% fixed carry over) with one more month to go.

    1. There’s been A strategy floated to possibly split purchase this year between this cycle and the next to possibly hope for an increase on the fixed portion from .40%. What do you think? I’ve yet to do this year’s allocation…

      1. Hey 2WR, I am kind of on rote auto pilot. If next cycle provides another fixed, I will gift buy it. And then peel off a corresponding 0% fixed 10k once it gets off the last 6.4% cycle. I will continue doing this until all the 0% fixed are off the books.
        For your situation, that seems a prudent middle hedge. Of course the minutia is the gamble of them having and what it would be, and loss of the higher 6.8% cycle of course.

    2. Would you double check it?
      the annualizations is confusing the hell out of me, when performed twice to two different components!
      April purchased would it be two annualized inflation components 6.48% + *3.26% and one annual fixed as 0.4%?
      there May 2023 is (6.48%+*3.26%)/2+0.4%=5.27% compounding ignored,
      or (6.48%+*3.26%)/2+0.4%-3.66%/4=4.355% adjusted to 3 months penalty

      1. I can go with your numbers too, IGR. Since I dont buy at first of the month, its not really a 3 month penalty. More like 2 months and 5 days, ha. But being I only have 50k in them, having exact percentages doesnt materially effect actual dollars received in interest.
        I remember buying the first tranche when it was 3.56% no fixed and thought I was getting a great deal. Now that it is likely returning to that level its seems low. Those 6-7-9% cycles spoiled me. Probably just sit on this amount here and rotate out zero fixed with ones with fixed if Treasury continues adding a fixed component. Its nice to have something I never check on or worry about. But if ever sits back to around 0%-1% total for a few cycles like it did several years back, I will sell them eventually again. Unless I dont want to pay the accrued taxes on them, ha.

        1. Grid – What’s the point of “rotating out of zero fixed with ones with fixed” other than to raise cash for other external reasons? If you’ve purchased your 10k allotment for the year, does Treas Direct allow you to sell old ones and replace with new ones in the same year beyond your already purchased 10k just as long as you do not net increase your amounts held above 10k? If they don’t then you’re not really rotating out. You’re solely raising cash and probably forfeiting you 3 months… Also no one ever talks about the effects of compounding… That’s what was so great about starting out with those really high coupons last year…. If you rotate out of those, don’t you lose the power of compounding? These are just open questions that jsut come to mind without doing any research.

          1. 2WR, You can sell anytime. You just cant buy more than 10k without gifting. I think you are over thinking what I am doing. I have reached the amount I want to hold give or take. Rotating out 0% with ones with fixed component increases forward returns.
            Inflation is about to rollover quick. In fact with oil collapsing March CPI could be very low or negative. So be it this coming next or some following one soon, I will start selling 10k anytime I buy 10k, starting on next cycle provided a fixed component is added.

            1. I might as well over think…. Gotta “over” something while under performing………

  2. January CPI reading finally got the next 6 month cycle off the near zero floor mat.
    CPI-U Data and May 2023 Inflation Rate Trend
    September 2022 CPI-U: 296.808
    January 2023 CPI-U: 299.170
    May 2023 Inflation Rate Trend: 2.40%
    *May 2023 Inflation Rate Trend = [(299.17/296.808)^(6/4)-1]*2 = 2.40%
    So if its 0% next 2 months one would be looking at 6.89% first 6 months plus 2.80% on back 6 if bought before end of April.

    1. Now I don’t have to make that calc.. thanks, Grid…. So that would mean a first year annual of 4.845% that doesn’t include the current fixed rate ad-on part?

      1. The current 2.4% doesnt include the fixed. Which one would have obviously if they purchased the 6.89% cycle. BTW, you dont really think I bought and sharpened a pencil and did the computations myself you do, ha.

        1. Super Bowl’s come and went and it’s too early for March Madness or Stanley Cup so I figured you might have had some spare time on your hands.. 😉

      2. 2wr…The calc. of the annual of 4.85% does include the fixed rate ad-on. The 6.89% and 2.8% used in the calc. both have it.

  3. I can’t understand my iBond accrued for my $10k purchase last April.
    Treas-direct shows $356 – which I expected for the 6mo at 7.12%, but nothing for the 9.62% final quarter (?) Is there a lag in posting it, or am I way off somehow? Or- do they post that rate after 6months?
    Also- I see there can be a delay in posting of interest rates, but I can’t find where that would be.

    thanks

    1. If you redeem before 5 years there is a 3 month penalty. That number is deducted from the balance you see on their website but no explanation is given.

      1. Just to add to Martins post. They withhold most current 3 months, plus there is a lag of one month to post the interest. The interest is posted first of the month. So in essence you will have a 4 month lag to see interest showing. So if my finger counting is correct you will see your first 9.62% interest show up after February 1.

    2. Gary… They include the 3 mo. penalty you would incur if it were to be sold before 5 years, so it shows 3 months less than you would expect

  4. If an account has been gifted 10k worth of IBonds in 2023, can the account also buy its annual amount of 10k on its own in 2023 as well?

    1. No, not if the gift has been sent and recieved. That counts as the annual 10k purchase limit. However, you can have that person buy you another 10k and hold them in the gift box until next year though. You can buy an additional 5k via a tax refund though come tax filing.

      1. Thanks… That’s what I suspected but wasn’t sure… It seems as though the days of wanting to back up the years for future gift giving are past for IBonds, so it’s one year at a time type decisions now……… And I’ve discovered a problem with my wife’s account where I inverted 2 numbers on the bank account of record so now I have to deal with the intense hoop jumping I need to do just to correct it.. FS Form 5512 sent back by snail mail only signed “in the presence of an authorized certifying official available at a bank, trust company, or credit union…. Certification by a Notary Public is not acceptable.” That’s not easy when your only banking relationship is with an online bank and who knows if there is such a certifying official in a local yokel country bank around here? Will try to track one down on Monday….. I pay for my sloppy mistake, but I suppose I need to get this done if I’m (officially my wife) ever going to successfully cash in an IBond …

        1. 2WR, Geez I know you retired and have plenty of time on your hands, but this is the way you really like to spend it with paperwork? Ha!
          I know you dont sleep much so here is an IBond article for 2023 you can kill some time with. After reading and mulling over, I suspect I will buy late in April, as 12 months will average out close to 5%. And I wont sell them keeping the fixed. Heck its likely I wont sell any this year as I dont want to pay any more taxes this year.
          https://tipswatch.com/2023/01/03/i-bonds-a-not-so-simple-buying-guide-for-2023/

          1. Ah yes, excess paperwork, red tape, dealing with Govt or insurance – all of my favorite things to do………no wonder I’ve got an appointment with a cornea specialist next month.. Thanks for the article

          2. WIsh I read this before my purchase the other day, I’d waited till April likely and done something in between. Oh well, small percentages either way.

        2. They now allow adding a bank account online – so if you haven’t dealt with this yet, you can probably just add the account with the correct numbers and then delete the bad one.

    2. Interestingly, I have read in the comments at end of this article recently that a few people have bought 10k first AND then received their gifts also in same year. Check out the recent comments at the bottom of the linked article. One person said they talked to a TD rep and they said you could do this. Apparently the key is to buy first then receive the gifts. Or just receive them all and not buy if you have no plans to purchase that year. If this is true, I may buy 10k, and if new fixed is .4 or higher, We may have 10k gifted each and then have all the gifts dumped to our accounts to clean out the gift boxes.
      https://thefinancebuff.com/buy-i-bonds-as-gift.html

  5. Isn’t anyone concerned about the small fixed component and duration of these bonds? If inflation normalizes to 2% longer term, the return isnt attractive for 30yr duration… And I missing something?

    1. Your going to be facing that next cycle. I never meant mine to be life holdings. But I am going to snag the 6.8% with a .4% fixed next spring. Then if April price comes with low adjustment and a fixed over 1% I will gift 10k more, and maybe sell 10k more after the high payment yields roll off…Plus 3 months.

      1. By Spring, you mean anytime before April 30? And as far as the return “not being attractive” if inflation normalizes at 2, if your intention is to have placed at least a small stash somewhere where it’s guaranteed to keep up with inflation, then your investment in IBonds will be a success whether or not inflation is at 2% or 8%. Right now, as we rave that money market funds are finally yielding 4%, even cash stashed there is not keeping up… IBonds are… Plus consider the compounding effect of buying IBonds now at 6.89% if held in a future 2% inflation rate environment. To me, as pointed out previously most likely by Grid, if inflation drops dramatically and you have the financial flexibility to do so, you just wait 3 months after they’re low and then get out if you want to, thus giving up only the last 3 months of newly calculated low interest rate.

        1. Inflation is running pretty low this cycle. If its say a 2 handle and a .4% fixed, I can do better in the CD dept. But, we havent had a period with lower inflation and higher TBills. So if they throw a decent fixed rate bone to counter act the low CPI imbalance, Im in for another 10K. A 2% plus 2% fixed would be great to have as a permanent hold. I could then sell off a 0% fixed one at that time if I wanted to keep same amount in IBonds.

      2. Assuming that the i-bond rates will go significantly lower by May, and cd and mm rates will drop significantly by 2024, isn’t the following the best way to invest in i-bonds in 2023:?

        The idea is to take advantage of current high mm or cd rates from Jan to Apr ’23, and then take advantage of 6 months of 6.8% with a i-bond. That is,
        place your $10k in a close to 4% mm or cd until the end of April, and ONLY then buy the i-bond. This way you get 4 months at ~4%, 6 months at 6.8% and then another 6 months at whatever low % will reset until April 2024 when I could sell.
        If instead, I buy my next i-bond in January 2023, I could sell it by Jan 2024, but then who knows how much I will be able to make from Jan to Apr ’24.

        Isn’t something like this what Grid had in mind when he said he would buy next spring?

        Does this make sense? (Obviously, if the i-bonds, mm and cd rates in 2024 will stay high (unlikely) then the above doesn’t make sense).

      3. Hey Grid……..just a novice question…I bought a 10K Ibond exactally a year ago..yield 6%….if I dont do anything (cash out)..what happens?….TIA

        1. Martin, you will earn a variable rate that changes every six months…adjusted with inflation. Matures in 30 years.

        2. Martin, If my guesstimate is correct you bought into the 7.12% cycle and just be completing the 9.62%. You should be just starting the 6.48% now. If you buy 10k more today you would get 6.88% because they added a 0.40% fixed component that is permenent (30 years) to the inflation component.
          Im thinking about buying 10k more at the 6.88% (Treasury spreadsheet says 6.89%) and then selling off 10k with 0% fixed once CPI runs cold after 3 months. This could possibly happen next cycle. Next cycle IBonds wont beat 1 year Treasury. So it depends on what your purpose is with this money on what to do.

          1. Am I missing something? Selling a 10k Ibond and then replacing it with the Ibond having an extra .40% would be a total gain of $40. Then you also lose 3 months dividend for selling early.

            1. Not a lot really. Except I will hold off selling that 10k until yield drops. Next cycle could be just 2%. Let the bond run 3 months past the 6.48% cycle then dump off losing the 2% ish. I gain that back by simply putting it in a 4.75% 1 year treasury likely. Im willing to keep some skin in the game with IBonds but wont add on that cycle and will use opportunity to get rid of the 0% fixed.
              If following cycle is say 2.5% plus 1% fixed, I will sell 10k more and buy 10k more via gifting.

            2. danzeb, I think the point is the newer ibond has a fixed rate of.40% and past ibonds had a fixed rate of 0%. Long duration the current Ibonds with the .4% will yield more. (Assuming inflation doesn’t increase). Does that make sense? You sell the 0 fixed rate when the variable rate remains lower after 3 months.

          2. This six month cycle may be the last hurrah for I-Bonds unless we get that big inflation spike Michael Burry is talking about. I am starting to see disinflation fires starting to burn in the markets. Would rather lock in a 1-2 yr CD or treasury than risk I-bonds moving back to very low rates.

            Game over for sure once Fed rate goes below 3-3.25% again.

            1. If rates become low then the early withdraw penalty will also be low. Worth it all for this and the last few rates.

          3. I bought my $30K for my family of iBond’s yesterday for the 2023 purchase. Just being tax differed, further diversifying my the income side of my estates assets, currently getting a decent no risk yield and my heirs getting a step up in cost basis someday is worth what Uncle Sam is offering.

              1. James, I went to law school and am not an accountant, but I believe ALL iBonds would step up in the case of a death 💀 I am currently skiing in Colorado (Breckinridge/Vale) this week and my heirs may get their portion of my estate after the poor quality of my transversing on these slopes!

                1. Azure, the grinch says there is no step-up cost basis for I bonds. So stay safe on those slopes! 🙂

                  I’ve confirmed this via several sources (including the Wall Street Journal) but this is from the finance buff:
                  https://thefinancebuff.com/i-bonds-taxes-simple-default.html

                  The Default – After You Die
                  The second owner or the beneficiary on your I Bonds inherits those bonds after you die. They can choose to cash out or continue to hold the bonds.

                  By default, your second owner or beneficiary doesn’t pay any taxes when they continue to hold those I Bonds they inherit from you. I Bonds aren’t eligible for a step-up in basis. They’ll pay federal taxes on the accumulated amount of interest since your original purchase when they cash out or when the bonds mature. It’ll be taxed as ordinary income, not long-term capital gains. The interest income is exempt from state taxes and local taxes. TreasuryDirect will track and calculate the interest and generate the 1099-INT form for the new owner.

                  Optional – Pay Up In the Year of Death
                  After you die, your surviving spouse or whoever files your final year’s tax return can choose to include all the accumulated interest earned through your date of death in the gross income on your final tax return. Then the second owner or the beneficiary will pay tax only on the interest earned going forward.

                  Your surviving spouse or the executor of your estate will need to do the calculation themselves if they choose this option. TreasuryDirect won’t generate any 1099 form unless they cash out your I Bonds.

                  Your second owner or beneficiary needs to keep the documentation to show how much interest was already added to your final tax return for the bonds they inherited. When they cash out the bonds or when the bonds mature, the 1099 form from TreasuryDirect will still show all the interest since your original purchase. They’ll have to remember to back out the interest that was already included on your final tax return. See IRS Publication 559 (page 11).

                  Because it can be many years until they cash out the bonds or when the bonds mature, it’s quite possible they’ll forget and they’ll pay tax again on the whole thing when they have a 1099 form in front of them. I think it’s better to just go with the default and not go out of the way to pay up in the year of your death.

  6. Want to buy that extra $5k of I-Bonds with your tax refund but don’t have that much coming back in your refund? Remember up until 1/15/2023 you can file estimated taxes with which you can increase your potential refund to what ever level you want. Yes, you give the Government free use of that money for a few weeks but if you want that extra 5K this is one way to do it.

    1. I thought you could make estimated tax payments at any time before you file your return. Am I wrong about that?

      1. David, the Federal Q4 estimate is due on January 16th, so you should be able to pay through https://www.eftps.gov/eftps/ or you can mail in a check using a 1040-ES form. I have never had a situation where the government wouldn’t accept my money.

      2. You can send the IRS money any time. However, if you want an estimated payment to count toward your 2022 taxes, it is due on January 16th. After that, it will count toward 2023 taxes.

        1. I don’t think this is correct. I logged into EFTPS today (1/31/23) and there is nothing stopping me from making a 2022 estimated tax payment.

          The only significance of the January 16th date is in avoiding an underpayment penalty for the quarter.

  7. new i bond fixed rate starting today is .4
    so at least a little bump from zero on any future i bond purchases

    1. I cant buy until January, and it will still be in effect. I will see how inflation this cycle plays out before I decide to buy again or unwind a 10k gift instead.

  8. If the new rate will be 6.47% plus a one percent base rate as alluded to by another user, you might come out better if you miss the 9.62% for the first 6 months.

    1. No, you would still not be better off. A 3% higher rate for half a year is an extra 1.5% towards your annual return. A 1% base rate wouldn’t be as good.

      You should have bought them last week, and then after a year, if the fixed rate is better, you sell those and buy the new ones.

      1. xerty…Perhaps, but now we are looking at a 3 month penalty eroding that 1.5%. I guess it depends on the reset rate, hold time etc. If they stay around 6%, 3 months penalty is 1.5%. Perhaps the base rate resets lower. Many possible scenarios. Also, the way I understand it, which could be wrong, is the total rate is the base rate/2 plus the inflation rate for the period, so the total new rate would be 6.97 (?)

  9. So many investors are scrambling to buy I Bonds, which pay a 9.62% interest rate if purchased by Oct. 28, that the Treasury Department said its overwhelmed site might not complete all the orders in time.

    During just the final week of October, the Treasury issued $1.95 billion in I Bonds, more than the total for fiscal year 2021. In just one year, some 3.7 million new accounts were created on the site, more than the 2.4 million for the prior 10 years combined.

    https://www.wsj.com/articles/as-investors-scramble-to-buy-i-bonds-treasurydirect-site-has-outages-11666817951

    1. Hard to feel sorry for them when they have had 6 months to lock it in. I bet there were more than a few who locked themselves out of their own accounts trying to do this also, lol.

    2. I realize its too late for this round, but there is a trick to getting through when treasurydirect is overwhelmed.

      They do maintenance every night (as far as I can tell) at around 8-9pm Pacific time. Site becomes useless. However, they “reboot” the site at around 10-10:30 (Pacific time). If you login then, the site is super responsive.

      I was helping some kids set up accounts, etc. on Oct. 27. Attempts before 8pm took hours, and usually wouldn’t complete (couldn’t get all the way through the process without the system failing). Tried again at 10:30 and things were super fast. Helped set up a new beneficiary and gift box purchase in 20 seconds total.

      Not a terrible for those of us in California – but a little late at night for the east coast crowd.

  10. US Treasury Series I Savings Bonds Inflation Rate Earnings (November ’22 – April ’23) will be 6.47% Annualized for 6 months. Strange considering the 8.2 CPI today 🫤

    1. Azure,
      The I-bonds rate reflects last 6 months´ inflation (times 2), whereas the 8.2 is annual. Not strange as inflation peaked 12 to 6 months ago, and in the last 6, it’s been only 3.2%.

  11. looks like the new rate will be 6.47% starting Nov 1
    if you buy now you get 9.62 for 6 months and then the 6.47 for the remaining 6 months
    So over 8 percent for the year

    Not bad as long as you don’t think about your purchasing power going down with no end in site

    1. I bought in April, received the 7% or so until here in Oct. I’m good now at least until Oct ’23

  12. I had a different experience. My wife and I both made that mistake. I got the notice the next day. I just responded to the e mail they told me what I did wrong and they put the money in the correct spots.

    The party maybe coming to an end. Thinking of buying more before the end of the month delivering the past gifts and not buying in 2023. My guess is I will lock in at least high 7’s low 8’s for the next 12 months. I don’t think buying in 2023 will get you that rate.

    1. Strange… I didn’t respond to the email i got. It looked like an automated form letter. I also notice in my account there are two segments.
      name and SS above a Blue bar (dates,rate , amount,etc.) with 4 bonds listed under it. IAAAA thru IAAAD
      Then lower… another
      name and ss above a Blue bar (dates,rate , amount,etc.) with 5 bonds under IAAAH thru IAAAM
      some have the same purchase date in both segments.
      both segments have bonds not matured. I cant come up with an explanation. IAAAC and IAAAD were the bonds that received an over purchase email notification.
      I agree with your logic on buying more. My last purchase will be redeemable in Jan 2025. Even if the last one is tied up for a year at zero, reality is if that does happen banks are going to be at zero as well.

  13. Good morning…
    I purchased 10K of I bonds for my wife and I in June of 2021. On Jan 1 2022 I purchased anther 10K for each. In May 2022, I learned about gifting of bonds between you and your spouse. While making a gift purchase.. I made a mistake while selecting the giftee and purchased another 10K in my own name by accident. I received notification the next day that i exceeded the 10K limit and that fund would be sent back to the account used to fund the purchase with in 8 – 12 weeks. That was mid May (almost 5 months ago) and the bonds still show in my treasury account. After 3 months had passed from the purchase, they started showing earn interest. Anyone ever had this happen? Thoughts?

    The second mistake I may have made was after purchasing an additional 30K (using the correct giftee’s) for my wife and myself. I delivered all of them to our respective accounts the next week. Recently I’ve read that you can only deliver 10K per year to the giftee and if they( giftee) had already met or exceeded their 10K limit for the year, the transfer would be disallowed (gift would stay in your gift box). This must not be correct, because the bonds were all delivered to our respective account and are all earning interest. Again….Anyone ever had this happen? Thoughts?

    Thank you

    Regards,

    1. They are slow correcting, and you earn interest that you get to keep while you wait for them to do so.

      My daughter made the same mistake you did. She tried to gift another family member but accidentally put them in her own account instead. The way the site is put together they make this error extremely likely to occur. The notice of the error did not come until six months or more later and she was sent back her principle and interest fairly soon after that notice went out.

      It is all catch as catch can. Each person’s experience will be unique, but my guess is they will eventually get around to sending the money where it is supposed to be, and if not, then congratulations!

      1. Thanks for sharing you experience Scott.
        Yes, when I added my wife I assumed everything was still under her name. I didnt realize after adding all her info, selecting gift, they shoot you back to the front page. If you dont select the correct precipitant from the drop down menu you just bought more for your self (default to account owner).
        I also sent in mature paper bonds 5 month ago. I got notification they were received in June. Still no payout.
        You think there just going to kick the gifts back to the senders gift box? eventually? I assumed they would sit in the giftee’s gift box. Not the case in my experience.

    2. I made the same mistake as you did on April 5. TD notified me of the error and impending refund BEFORE they took the money from my bank.

      Still waiting for the funds.

      If as Scott says TD pays interest (at the I Bonds rate?, with no penalty?), they can keep for a while.

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