I bonds are back with a huge new 5.51% return - USA Today

I bonds for sale starting Nov. 1 will pay the highest fixed rate in 20 years, according to the U.S. Treasury.

I bond rates change every 6 months and are meant to protect your money against inflation. The rate includes a fixed and variable rate. The fixed rate remains the same for the life of the bond, and the variable rate moves every six months based on the inflation rate. The annualized variable rate for the bonds on sale from Nov. 1 through April 30 will increase to 4.08%, based on 2.04% inflation from April to September and from 3.34% in the previous six months. The fixed rate, set by Treasury, rose to 1.4%, from 0.9% and is the highest since November 2006.

The increases in the variable and fixed rates together pushes the 30-year I bond's composite rate through April to 5.51%, topping current T-bill rates and the best certificate of deposits (CDs) and high yield savings accounts rates. That makes them worthwhile to consider as a low-risk investment, analysts said. I bonds that sold from May through October offered a composite rate of 4.26%.

"I bonds are a great, very safe investment, especially when used as a back-up emergency fund," said David Enna, writer at news site Tipswatch who has been investing in Treasury Inflation-Protected Securities since 1999. "The principal continues growing with inflation, plus the fixed rate, and can never go down in value."

The new 5.51% rate isn't as high as the 9.62% the Treasury offered back in 2022 when inflation reached a 40-year high and caused an I bond buying spree, but it beats most of the top CD, money market, high-yield savings and T-bill rates. And it can still rise further if inflation continues to heat up.

Here's how the I bond's 5.51% rate stacks up against yields of:

While there's no harm in buying the new I bonds as soon as they go on sale on Nov. 1 to lock in that rate, there's a smarter time to buy them, bond watchers said.

"Late in the month, because every savings bond is dated the first day of the month you buy it, so a purchase on the 28th earns exactly the same interest as one on the 1st," wrote the independent bond calculator and tool site Savings Bond Value in a blog.

"The difference is what your money was doing in the meantime," it said. "Buy on the 28th and your cash spent those extra weeks in your own bank account, earning whatever your bank pays. Buy on the 1st and you gain nothing extra from the Treasury. Waiting until late in the month is a small, free edge."

To be safe, buy a little earlier than the last day of the month because the Treasury will take a couple of days to process your purchase, analysts said.

"A purchase around Nov. 25 would be a good target," Enna said.

I bonds are only available electronically, bought through your TreasuryDirect account. You must have a Social Security or Employer Identification number to purchase them.

You may buy up to $10,000 of I bonds for yourself in a calendar year. Gift bonds count toward the limit of the recipient, not the giver. For example, if you buy I bonds for a child, the I bonds would be under the child's Social Security number and count towards the child's annual $10,000 limit that's separate from yours.

On Jan. 1, the purchase limit resets for the new year. So, if you haven't bought at all this year, you "will get a nice opportunity in November and December," Enna said.

But "I'd suggest waiting until mid-April to make a purchase in 2027, because at that point, we will know the new variable rate and have a pretty good idea of the new fixed rate," he said.

You must pay federal income tax but no state and local taxes on I bonds. You can either report each year's earnings or wait to report all the earnings when you cash the bond. You can cash them in only after 12 months, but if you do so in less than 5 years, you lose the last 3 months of interest. 

If you use the money for qualified higher education expenses, you may not owe tax on the earnings.

Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.