__U.S. government [I-Bonds](https://www.treasurydirect.gov/savings-bonds/i-bonds/) are about to be deposed as the undisputed king of the fixed-income hill.__

Two years ago, I-Bond rates began an inflation-driven upward move that eventually (in May 2022) hit an annualized 9.62%(!) — a remarkable return for a virtually risk-free investment. Since November, the annualized rate has stood at a still-strong 6.89%.

But with inflation cooling (somewhat), I-Bonds are falling back to earth. The new I-Bond rate, to be announced May 1, won't be quite so attractive.

[From MarketWatch](https://www.marketwatch.com/story/i-bonds-are-over-long-live-i-bonds-this-is-your-warning-that-rates-are-about-to-drop-precipitously-cba31ac1):

> I-bonds are priced based on two factors: a *variable* rate based on six months of inflation data (from October through March) and a *fixed* rate that is less transparently calculated. The latest CPI numbers for March indicate that the variable rate is going to pan out at an annualized rate of 3.38%....
> 
> The current fixed rate is 0.4%, and it’s still unclear what the next one will be, but it’s unlikely to stray too far from that threshold.
> 
> If the composite annualized I-bond rate stays in line with predictions, it will come in [around 3.79%], making I-bonds less lucrative in the short-term than other comparable investments like Treasury bills, TIPS, CDs and even some high-interest savings accounts.

However, not *all* I-Bonds will experience a rate change on May 1. Any I-Bond purchased *before the end of April* will earn the current 6.89% annualized rate for the next six months. After that, such bonds will reset (for the next six months) to the new less-than-4% annualized rate.

__[MAY 1 UPDATE:__ Much to the surprise of I-Bond observers, the May 2023 rate is 4.30%, which includes a 0.9% fixed rate.]

__I-Bond Rates Are Announced Each May and November__

May 2023
- 3.79% (projected, not yet official)
- 4.30% (incl. fixed rate of 0.9%)

Nov 2022
- 6.89% (incl. fixed rate of 0.4%)

May 2022
- 9.62% (fixed rate was 0.0%)

Nov 2021
- 7.12% (fixed rate was 0.0%)

May 2021
- 3.54% (fixed rate was 0.0%)

Nov 2020
- 1.68% (fixed rate was 0.0%)

May 2020
- 1.06% (fixed rate was 0.0%)

#### Running the numbers

Because annualized rates are in effect only for six months (yeah, that's confusing), an annualized rate must be divided by two to calculate the rate earned over a semi-annual period.

[YouTuber Jennifer Lammer](https://www.youtube.com/watch?v=hwBPBWRht3I), a self-described "super saver," created a helpful graphic that shows how the current rate (6.89%) and the expected rate (3.79%) would result in a one-year dollar gain of more than $500 on a $10,000 investment.

![](https://soundmindinvesting.com/assets/articles/lammer-ibond-graphic-2023-0414.png)

As you can see, $10,000 invested now in an I-Bond would grow to $10,540.36 over 12 months — a return of 5.40%. That's not bad, but it won't make anyone enthusiastic at a time when [some CDs are paying that much](https://www.depositaccounts.com/cd/) and without the restrictions that I-Bonds carry (see below).

That said, if you've already invested in I-Bonds, or plan to purchase some between now and the end of April, you'll still earn a decent return — and remember that I-Bonds are virtually risk-free. Further, depending on the course of inflation over the next six months, the rate could tick up again.

If you want to run your own I-Bond calculations, check out this [specialized online calculator](https://casaplorer.com/i-bond-calculator).

#### I-Bond restrictions

- __Direct purchase only.__ You can't buy I-Bonds within your retirement or brokerage account. You must open an account at [Treasury Direct](https://treasurydirect.gov/). However, [the process isn't too painful](https://thefinancebuff.com/how-to-buy-i-bonds.html), and the purchase money transfers from your bank account.
- __Holding period.__ I-Bonds must be held for at least 12 months, making them less liquid than some other fixed-income investments. If they are redeemed between one and five years, you will lose the last three months of interest.
- Purchase maximums. In most cases, you can purchase only $10,000 of I-Bonds per calendar year per account holder. Therefore, a husband and wife can invest an annual maximum of $20,000. If you are due an income tax refund, that refund can be directed to purchase up to an additional $5,000 of I-Bonds. (It is also possible to [buy I-Bonds as a gift](https://thefinancebuff.com/buy-i-bonds-as-gift.html). )

*[Image](https://soundmindinvesting.com/assets/articles/lammer-ibond-graphic-2023-0414.png) used with permission.*

**

Since 1990, do-it-yourself Christian investors have relied on SMI for proven strategies and trustworthy guidance.

Sound Mind Investing

Investing

U.S. government I-Bonds are about to be deposed as the undisputed king of the fixed-income hill.

INVESTING | May 16, 2023

I-Bonds Fall Back to Earth

By: Joseph Slife

Since 1990, do-it-yourself Christian investors have relied on SMI for proven strategies and trustworthy guidance.

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