Here’s why it could be better to buy Series I bonds before May, experts say

While the annual rate for newly purchased Series I bonds could fall below 5% in May, the assets may still appeal to long-term investors, experts say.

Investors currently earn 5.27% annual interest on new I bonds purchased before May 1. Some experts predict the new rate could drop to around 4.27% based on inflation and other factors.

But there’s still a chance to lock in six months of the 5.27% yearly rate for new I bonds before May 1, assuming you haven’t exceeded the purchase limit for 2024.

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The U.S. Department of the Treasury adjusts I bond rates — with a variable and fixed-rate portion — every May and November.

Based on the last six months of inflation data, the variable portion will fall from 3.94% to 2.96% in May. The fixed-rate portion is harder to predict, but experts say it could stay close to 1.3%.

The 1.3% fixed rate makes I bonds “very attractive” for long-term investors because the rate stays the same after purchase, said Ken Tumin, founder of DepositAccounts.com, which closely tracks these assets.  

By contrast, the variable rate stays the same for six months after purchase, regardless of when the Treasury announces new rates. After that, the variable yield changes to the next announced rate.

If you want more I bonds, “it’s probably a better bet to buy before the end of April and lock in that higher rate for six months,” according to David Enna, founder of Tipswatch.com, a website that tracks Treasury inflation-protected securities, or TIPS, and I bond rates.

If you buy I bonds now, you’ll receive 5.27% annual interest for six months and the new May rate for the following six months. He suggests buying a few days before April 30.

Enna expects the fixed rate will be 1.2% or 1.3% in May, based on the half-year average of real yields for 5- and 10-year TIPS.

However, long-term investors could be disappointed if they purchase in April and the Treasury announces a higher fixed interest rate in May.

While long-term investors may be eyeing the I bond fixed rate, short-term investors may have better options for cash elsewhere, experts say.

“They’re not a slam dunk anymore compared to an online [certificate of deposit] or compared to an online savings account,” Tumin said.

As of April 19, the top 1% average one-year CDs were paying about 5.5%, and the top high-yield savings accounts were paying around 5%, according to DepositAccounts.   

Experts say short-term investors may also consider U.S. Treasurys or a money market fund.

As of April 19, most Treasury bills were paying well over 5%, and two-year Treasury notes were around 5%. Meanwhile, some of the largest money market funds were paying close to 5.4% as of April 19, according to Crane Data. 

“You just don’t know where short-term rates are going to go,” Enna said. “That’s why I like the idea of locking in a year if you’re going to buy a short-term investment.