Treasury I bond rates poised to slide in November

The Treasury Department’s popular inflation-protected I bonds won’t return as much when the rate adjusts on November 1, so buying them now is a better bet.

The rate will be at least 6.48%, according to estimates from Ken Tumin, a senior industry analyst at Lending Tree and founder of DepositAccounts.com, down from the current 9.62% the I bonds are offering until the end of October. The rate applies for the first six months you hold the bond.

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That’s the second-best rate since November 2005 when the composite rate was 6.73% and the seventh-highest since the bond’s introduction in 1998, according to Treasury data. But if inflation cools quickly over the next six months, the bond won’t be worth as much.

“For November I bond purchases, we only can know the first six months I bond inflation rate. We won’t be able to estimate exactly the May I bond inflation rate until mid-April 2023,” Tumin said. “It’s possible that the inflation rate could be much less. Then, the I bond will look much less appealing — like it has been before 2021.”

Time to buy is now

And there’s still time to pick up your I bonds with a 9.62% rate before the end of the month.

If you purchase one between now and the end of October, you’ll earn the current lofty composite interest rate of 9.62% for the first six months. And then the expected lower rate of 6.48% will kick in for the next six months. The combo will land you a respectable annual rate of more than 8%.

But even if you look at it as a one-year investment, it’s a good deal.

“You can determine the return for I bonds purchased in October and redeemed in October to December 2023 by taking into account the three-month early withdrawal penalty, when redeemed from one to five years after purchase, and that still comes out to close to 7%,” Tumin said, “which is way above today’s top one-year CD rate [of] 4.00% APY.”

You can buy I bonds with no fee from the Treasury’s website, TreasuryDirect. In general, you can only purchase up to $10,000 in I bonds each calendar year. But there are ways to bump up that amount, such as using your federal tax refund to directly buy an additional $5,000 in I bonds.

You should “complete the purchase of this bond in TreasuryDirect by October 28, 2022 to ensure issuance by October 31, 2022,” according to the site.

One niggle: I bonds must be held for a minimum of a year and, as Tumin noted, bonds redeemed before five years lose the last quarter’s interest.

Writer: Kerry Hannon for Yahoo Finance

Follow her on Twitter @kerryhannon

Author: Dennis Hickey

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