As we approach May, experts are predicting a decrease in the annual rate for newly purchased Series I bonds. Currently, investors are earning 5.27% annual interest on new I bonds purchased before May 1st. This rate is expected to drop to around 4.27% based on inflation and other factors. However, there is still an opportunity to lock in six months of the 5.27% yearly rate for new I bonds before May 1st, assuming the purchase limit for 2024 has not been exceeded.

The U.S. Department of the Treasury adjusts I bond rates twice a year, in May and November, with a variable and fixed-rate portion. Based on the last six months of inflation data, the variable portion is expected to fall from 3.94% to 2.96% in May. The fixed-rate portion is more difficult to predict, but experts suggest it could remain close to 1.3%. This fixed rate makes I bonds appealing to long-term investors as it remains the same after purchase.

Timing for Investors

Experts recommend buying I bonds before the end of April to lock in the higher rate for a period of six months. By purchasing before April 30th, investors can receive 5.27% annual interest for the first six months and the new May rate for the following six months. While the fixed rate is expected to be around 1.2% or 1.3% in May, investors may be disappointed if a higher fixed interest rate is announced by the Treasury at that time.

While I bonds may be attractive for long-term investors, short-term investors may find better options for cash elsewhere. According to Ken Tumin, founder of DepositAccounts.com, I bonds are no longer a guaranteed bet compared to online certificates of deposit or savings accounts. As of April 19th, the top 1% average one-year CDs were paying about 5.5%, and high-yield savings accounts were offering around 5%.

Short-term investors may also consider U.S. Treasurys or a money market fund as alternatives to I bonds. As of April 19th, most Treasury bills were paying well over 5%, and two-year Treasury notes were around 5%. Additionally, some of the largest money market funds were paying close to 5.4% as of the same date. The unpredictability of short-term rates makes it important to carefully consider the best investment options.

While Series I bonds continue to be a viable option for long-term investors, the potential rate decrease in May may impact their appeal. It is crucial for investors to evaluate their investment goals and consider the current market conditions before making any decisions. Short-term investors have a range of alternative options to explore, each with its own set of benefits and risks. By staying informed and proactive, investors can make the best choices for their financial future.


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