Series I bonds are ‘still a good deal’ despite an expected falling rate in May, experts say (2024)

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Series I bonds are ‘still a good deal’ despite an expected falling rate in May, experts say? ›

Series I bonds are 'still a good deal' despite an expected falling rate in May, experts say. The annual rate for Series I bonds could fall below 5% in May based on inflation and other factors, financial experts say.

I bonds issued from May 1, 2024, to Oct. 31, 2024, have a composite rate of 4.28%. That includes a 1.30% fixed rate and a 1.48% inflation rate. Because the U.S. government backs I bonds, they're considered relatively safe investments.

31, when the rate is set for another six months of issues, and so on. For I bonds issued between May 1, 2024 and Oct. 31, 2024, the fixed interest rate is 1.3%. A second interest component is based on inflation rates, and it resets every six months.

3 That's because the change in the variable inflation rate to be announced May 1, as we discussed above, will lower 6-month returns by about a percentage point. Purchase before April 30 and you can still lock in the previous rate for six months. But beginning May 1, that rate will no longer be available.

The September I Bond composite rate is 4.28% (US Treasury) which is 2.14% earned over 6 months. The September 2024 I Bond Fixed Rate is 1.30%. Read on to decide if you'd like to continue buying I Bonds, or if you'd rather cash them out.

You'll likely want to time your cash-out for three months after your I-Bond's reset date so that the three months' interest you lose are of the new lower rate, not the higher rate you were happier with. To accomplish that, you should hold your I-Bond for at least 15 months.

Investment advisers say now is a fine time for bonds. They are a good investment in 2024, experts say, for the same reasons they felt like a bad investment in 2022. That year, the Federal Reserve embarked on a dramatic campaign of interest-rate hikes in response to inflation, which reached a 40-year high.

You can get your cash for an EE or I savings bond any time after you have owned it for 1 year. However, the longer you hold the bond, the more it earns for you (for up to 30 years for an EE or I bond). Also, if you cash in the bond in less than 5 years, you lose the last 3 months of interest.

Lock in current high yields

The good news is that bonds allow you to lock in current yields for the long run. The better news is that many bond mutual funds invest across the broader bond market and are benchmarked to the Bloomberg U.S. Aggregate Bond Index, which now offers yields comparable to current cash rates.

Fixed income markets as assessed by the CME's FedWatch Tool are currently looking a federal funds rate reduction of 0.75% to 1.5% by December 2024. Short-term rates are expected to end the year at a little more than 4%.

What is the downside of an I bond? ›

Cons of Buying I Bonds

I bonds are meant for longer-term investors. If you don't hold on to your I bond for a full year, you will not receive any interest. You must create an account at TreasuryDirect to buy I bonds; they cannot be purchased through your custodian, online investment account, or local bank.

Unlike I-bonds, TIPS are marketable securities and can be resold on the secondary market before maturity. When the TIPS matures, if the principal is higher than the original amount, you get the higher amount.

Interest earned on I bonds is exempt from state and local tax but subject to federal tax. The interest is taxed in the year the bond is redeemed or reaches maturity, whichever comes first.

The fixed rate never changes. We announce the fixed rate every May 1 and November 1. That fixed rate then applies, for the life of the bond, to all I bonds that we issue during the next 6 months.

The Treasury Department says that you will still get a full month's worth of interest no matter if you purchase your I bond on the first or last business day of the month. However, there are a few big caveats. For one thing, I bonds can't be cashed out within the first year.

If an investor wants a steady income stream, a Treasury bond might be a good choice. However, if interest rates are rising, purchasing a bond may not be a good choice since the fixed rate of interest might underperform the market in the future.

Because bond prices typically rise when interest rates fall, the best way to earn a high total return from a bond or bond fund is to buy it when interest rates are high but about to come down.