I Bond Rates Are Back Above 4%, Thanks to Inflation

Interest rates on Series I Savings bonds, commonly known as I bonds, are on the rise for the first time in two years. The Department of the Treasury recently announced that the rate for I bonds purchased within the next six months will be 4.03%, up from 3.98%. This increase is attributed to the high inflation experienced between April and September, which influenced the November rate calculations.

David Enna, the founder of the financial site TIPS Watch, which closely tracks I bonds, expressed his support for I bonds as a medium- to long-term investment. With the rate now at 4.03%, even short-term investors can expect a decent return.

I bonds are specifically designed to safeguard savings from inflation and have gained popularity in recent years. In 2022, the rate exceeded 9% for the first time due to surging pandemic-era inflation. Despite the subsequent rate decreases, experts maintain that I bonds remain one of the most reliable hedges against inflation.

The interest rates of I bonds are recalculated every six months to adjust for changes in inflation. The variable rate, currently at 3.12% annualized, reflects these adjustments. On the other hand, the fixed rate remains constant throughout the bond’s lifespan, which can be up to 30 years.

The Treasury Department recently set the new fixed rate at 0.9%, down slightly from 1.10%. This means that I bonds purchased before the end of April 2026 will have a fixed rate of 0.9% for up to 30 years, ensuring a return above the rate of inflation. While the variable rate is based directly on inflation, the methodology for determining the fixed rate remains undisclosed.

Enna, who has successfully predicted I bond rates for several years, forecasted the new rate at 4.03% shortly after the Bureau of Labor Statistics released its inflation report. He anticipates that the fixed rate of 0.9% will persist in the future, although it may decrease in May 2026 depending on the Federal Reserve’s actions against inflation.

Investors seeking to secure the 0.9% fixed rate must purchase their bonds before the potential decrease in May 2026. Despite the caveats associated with I bonds, such as the $10,000 annual purchase limit and the three-month interest penalty for early withdrawal, they are considered a reliable long-term hedge against inflation.

In comparison to other investment options like money-market accounts, high-yield savings accounts, and CDs, I bonds offer a guaranteed rate of 4.03% for six months and a fixed rate of 0.9% for up to 30 years. These rates provide stability in a fluctuating market where traditional savings account rates can change abruptly without notice.

Overall, I bonds continue to be a secure investment choice for individuals looking to protect their savings from inflation. With the recent rate increase, they offer a competitive return and long-term financial security.