What is the current interest rate on us treasury bonds

Amid high inflation and a rocky stock market, I bonds have boomed in popularity. They offer a high yield but are guaranteed by the government. inte2000/Getty Images

Friday is the last day to buy a so-called I bond and lock in a 9.62% annualized interest rate for the next six months. I bonds are inflation-adjusted savings bonds issued by the U.S. government. Their interest rate changes every six months, in May and November. 

Normally, when inflation is low, they’re not all that popular because they don’t offer a great rate of return. But right now — with inflation as high as it is and the stock market volatile — they’re quite popular.

So much so that the Treasury Department’s website, which is the only place to buy I bonds, has been overwhelmed in the last couple of days as investors rushed to benefit from the high rate before it changes next week. 

Around noon Eastern on Friday, Jennifer McKinnon was trying to log into her Treasury account.

“Let’s see if this actually works. I doubt it,” she said. McKinnon was right — it didn’t. “Man! Why can’t I type in anything?”

McKinnon lives in New York and works in real estate. She already bought some I bonds a couple of weeks ago but was hoping to buy more before the deadline and get her family and friends to buy them too.

“I have told so many people about this where I feel like the Treasury owes me a commission,” McKinnon said. Individuals can buy up to $10,000 in electronic I bonds during a calendar year.

Before this year of high inflation, “not many people really paid much attention to I bonds,” said Giang Nguyen, a finance professor at Penn State. “But now that we suddenly find ourselves in a very high inflation environment and most investments out there are losing value, that’s why you see the rush.”

There’s pretty much nowhere else to get such a high rate of return guaranteed. 

“This year has been really tricky for anyone trying to save for the future,” said Winnie Cisar at the research firm CreditSites.

Shejust bought I bonds for everyone in her family.

“There’s still a lot of uncertainty around the economy — what are equities going to do, what is inflation going to do?” she said. “And it felt like a pretty compelling opportunity.”

Next week, the interest rate on I bonds will drop from 9.62% likely to about 6.5%, Cisar said.

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How I bond rates are calculated

Backed by the U.S. government, I bonds don't lose value and earn monthly interest with two parts: a fixed rate, which may change every six months for new purchases but stays the same after buying, and a variable rate, which changes every six months based on inflation.

TreasuryDirect announces new rates every May and November.

You can estimate the new variable portion of the rate based on the previous six months' consumer price index data, which measures inflation.

The Department does not disclose how it determines the fixed portion of the rate, but experts think factors including demand and the yield from Treasury inflation-protected securities influence it. For example, a higher TIPS yield could play into a decision to increase the fixed portion of the rate for an I bond.

While the consumer price index was still relatively high in September, the I bond rate drop reflects a downward trend over the past six months.

Early estimates for the I bond rate were 6.48% based on the inflation figures. However, the new rate includes an increase to 0.4% for the fixed portion of the rate, factoring in higher TIPS yields, Tumin said. The previous fixed portion of the rate was zero.

What the rate change means for older I bonds

If you bought I bonds before the latest rate announcement, the timing of when your rate changes and what it changes to will depend on when your bonds were issued.

For example, if you bought I bonds during September in any given year, your rates will reset each year on March 1 and September 1, according to the Treasury. Bought in June? Look for changes every December 1 and June 1.

The headline rate may be different than what you receive, considering that the fixed rate remains set for the life of your bond.

Someone who bought an I bond in September 2004, for example, has 1% for the fixed portion of their rate. Their composite rate reset to 10.67% in September, and will change to 7.51% at their next reset in March 2023, according to Treasury data.

The downsides of I bonds

While the current I bond rate may be attractive, experts point to several downsides. And some of them are potentially costly.

One of the trade-offs is you can't touch the money for at least one year. There's a three-month interest penalty if you cash in the I bond within five years of it being issued. 

Another drawback is lower future returns, explained certified financial planner Christopher Flis, founder of Resilient Asset Management in Memphis, Tennessee.

Depending on future inflation, the variable portion of I bond interest may adjust down again in May. Aiming for 2% inflation, "the Federal Reserve is not going to rest until that number comes down," he said.

And as interest rates increase, the difference in yields between I bonds and other government-backed assets, such as the 2-year Treasury, is getting smaller. "The relative attractiveness of these assets is dwindling," Flis said.

Even with excess money after covering other financial priorities — no credit card debt, an emergency fund and your 401(k) match — Flis wouldn't pick I bonds as the next option.

"Long-term investors, specifically younger ones, should really be looking to the stock market for the backbone of their portfolio," he said. "Certainly not I bonds."

Frequently asked I bond questions

1. What's the current interest rate? 6.89% annually

2. How long will I receive 6.89%? Six months after purchase

3. What's the deadline to get 6.89% interest? Bonds must be issued by April 30, 2023. The purchase deadline may be earlier

4. What are the purchase limits? $10,000 per person every calendar year, plus an extra $5,000 in paper I bonds via your federal tax refund

5. Will I owe income taxes? You'll have to pay federal income taxes on interest earned, but no state or local tax

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