I Bonds Rate Ticks Up to 3.98% Through October 2025
The yield for Series I Savings Bonds, also known as I bonds, is once again on the rise after a period of decline. The U.S. Department of the Treasury has set the new annualized I bond rate at 3.98% for bonds purchased now through the end of October. This rate marks a slight increase from the previous rate of 3.11% and is the first uptick since November 2023.
With built-in inflation protection, the increase in the I bond rate reflects the ongoing battle with consumer prices in the U.S. economy. These government-guaranteed bonds provide everyday savers and investors a safe way to hedge against rising prices.
In the midst of the cost-of-living crisis, the I bond rate reached a record high of 9.62% in 2022. While the current rate is lower, it comes with a new perk that previous bonds did not have: a 30-year fixed rate of 1.1%.
The overall I bonds rate is a combination of a fixed rate, which remains constant for the life of the bond, and a variable rate based on the previous six months of inflation. This results in the current annualized rate of 3.98%. The return on an I bond is guaranteed for six months, with the fixed rate locked in for up to 30 years and the variable rate recalculated every six months based on inflation trends.
I bonds offer protection against inflation and may even provide modest earnings on top of inflation due to the respectable fixed rate. Additionally, any earnings from I bonds are not subject to state taxes, and federal taxes are deferred until the bonds are cashed out.
However, there are some caveats to consider when investing in I bonds. They must be purchased digitally through TreasuryDirect.gov, have a $10,000 annual purchase limit, and must be held for at least one year. Bonds cashed out within five years of purchase incur a three-month interest penalty.
As a conservative, long-term investment option, I bonds stand out for their safety and tax benefits. While there are other safe options available with predictable yields, such as certificates of deposit (CDs), I bonds offer unique advantages. CD rates are not tied directly to inflation and often come with minimum balance requirements and early withdrawal penalties.
Given the current economic climate and the anticipation of rising prices, I bonds may become a popular choice for investors seeking a safe and reliable investment option. With their guaranteed returns and protection against inflation, I bonds continue to be a valuable asset in a diversified investment portfolio.
