How long do i bonds earn interest

After a difficult year for the stock market, investors have poured money into Series I bonds, a nearly risk-free and inflation-protected asset that's paying a record 9.62% annual interest rate through October.

With the rate expected to drop to roughly 6.48% in November, there's a brief window to secure higher interest for six months, assuming you haven't exceeded the I bond purchase limits for 2022. 

While I bond rates shift twice yearly based on inflation, you can still lock in 9.62% annual interest for six months — as long as you complete the purchase by Oct. 28. And six months after your purchase date, you'll earn roughly 6.48% for another six months.

"That's an option if someone wants the best of both worlds," said Ken Tumin, founder and editor of DepositAccounts.com, who tracks I bonds, among other assets. 

More from Year-End Planning

Here's a look at more coverage on what to do finance-wise as the end of the year approaches:

• How the uber-rich pass down wealth when markets are down
• How to make inflation-protected bonds work in your portfolio
• Series I bond interest expected to fall to roughly 6.48% in November

You can estimate I bond rates for one year

There are two parts to I bond rates: a fixed rate, which stays the same after purchase, and a variable rate, which shifts twice per year based on inflation.

The U.S. Department of the Treasury announces new rates every May and November, and you can estimate the next variable rate about two weeks before from the consumer price index reports released in April and October.

The estimates offer a brief period to know roughly what you'll earn for one year, which is how long you'll lose access to the funds after buying.

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"It's nice to know what interest rates you will get when you're committing to a 12-month lockup," said Jeremy Keil, a certified financial planner with Keil Financial Partners in Milwaukee.

While it's too early to estimate rates for May 2023, buying I bonds before the end of October means you'll receive the May and November rates for six months each.

"There's no doubt that it's better to get the 9.62% for the first six months, and then 6.48% for six months," said David Enna, founder of Tipswatch.com, a website that tracks I bond rates. 

It's nice to know what interest rates you will get when you're committing to a 12-month lockup.

Jeremy Keil

Financial advisor at Keil Financial Partners

"A short-term investor — somebody just wanting to put away cash — should definitely buy in October," he said.

However, if you're trying to secure the 9.62% rate before November, Enna suggests making the purchase no later than a few business days before the end of October.

You must complete your purchase and receive a confirmation email by Oct. 28, according to TreasuryDirect.

What to know before buying I bonds

While roughly knowing I bond rates for one year may be appealing, there are a few things to consider before buying, experts say.

"The biggest downside is you are locked in for 12 months," Keil said. "You cannot take it out for any reason." And you'll give up three months of interest by cashing in before five years. 

Still, I bonds may be worth considering for a portion of your emergency savings, as long as there's other cash readily available for unexpected costs, he said. 

And if you're expecting college tuition bills in 2024, Keil said it's a "great time" to secure guaranteed interest for one year, which is tax-free for qualified education expenses.

Correction: To secure the 9.62% rate before November, you must complete your purchase and receive a confirmation email by Oct. 28, according to TreasuryDirect. An earlier version misstated the timing.

Savings Bonds are often considered a safe and trustworthy investment because the U.S. government backs them. There are different types of savings bonds, the most recent and one of the most popular types being the I Bond.  A key feature of the I Bond is that it is inflation-protected.

How do I Bonds Work?

I Bonds provide an interest rate of 6.89%, and this rate is good through April 30, 2023.  Part of the interest rate is tied to the inflation rate and so the rate changes every 6 months.

I Bonds earn interest each month, and the interest is compounded every six months.  You can earn interest on them for as long as 30 years, and can cash them out after 5 years without losing interest.  You lose only three months interest if you cash them out before you reach 5 years.  This is an especially good option for anyone with limited savings who may worry about putting money into an investment that they can’t easily cash out if needed for an emergency.

How Do You Purchase I Bonds?

You purchase I Bonds at face value; for example, you pay $50 for a $50 bond.  Earnings are exempt from state and local income taxes. Federal income taxes can be deferred for up to thirty years, or until you cash them in, whichever comes first.

You can buy saving bonds by setting up an account at http://www.treasurydirect.gov, a U.S. Treasury website.  You can also set it up to make regular savings bond purchases through automatic deductions from your checking or savings account.  You can also receive part or all your tax refund in the form of a savings bond by filling out form 8888 with your tax return.

For more information you can contact the U.S. Treasury information line at 844-284-2676.

How do they compare to cash investments?

A quick glance at national interest rates shows an average rate of 0.55% for money market accounts. The average interest rate for a three-year CD (certificate of deposit) is 0.59%, and 0.77% for a 5-year CD (Bankrate Figures, as of November 2021).

Do I bonds earn interest forever?

Do I bonds earn interest after 5 years?

How often does an I Bond earn interest?

What happens to I bonds after 30 years?