I-bonds

[Lotus-eater]

7 hours ago, GlenDale said:

Thank you for the response. I don’t think I ever saw those high interest rates applied so I’ll go back and check the history of each bond to verify.

There’s this comment from an early thread that confuses me also:

Important to note that the I bonds are a variable + fixed rate.  The variable rate adjusts every 6 months.  There may come a time in the coming years where it makes sense to cash in the bonds issued this year when the fixed rate exceeds the inflation rate.  There's no penalty after 5 years.  The 1 year to 5 year penalty is forfeiting the last 3 months interest. 

 

The total interest rate of an I-bond=inflation rate + fixed (real) rate. The inflation rate resets every 6 months to reflect current inflation (which has declined a lot since 2022 and therefore so has the total interest rate). When you buy the bond, the fixed (real) rate, which is usually very low (it has varied between 0% and 1.3% over the past 5 years), is what you get for 30 years. So you're buying inflation protection plus that small fixed rate, which is your real return.

If you cash in the bond before 5 years have elapsed, you give up the last 3 months interest. For example, if you cashed in a bond bought in 2022 one year later, you'd would have received about 7.2% in interest instead of 9.6%. If you cash it in now, you'd get about 2.25% instead of 3%. So cashing it in now and investing in something else that pays more won't cost you very much.

The interest you received depends on exactly when you purchased the bonds. If you missed that window and bought in November of 2022 instead of May-Oct., the interest rate fell to 6.89% (and lasted only 6 months until the next reset).

Edited 2 hours ago by Lotus-eater