How To Buy I Bonds in March 2023
Are you searching for greater interest rates to grow your money?
If yes, then US Series I Savings Bonds might be exactly what you’re looking for!
The March 2023 I Bond Composite Rate
The March 2023 I bond composite rate is 6.89% (US Treasury) which is 3.45% earned over 6 months. Your $100 investment becomes $103.45 in just 6 months!
What will the May 2023 I Bond inflation rate be?
The May 2023 I Bond inflation rate is projected at 3.26%* based on 5 months (out of 6 needed) CPI-U data.
How is the I Bond Composite Rate Determined?
The composite rate is a combination of the fixed rate and the semiannual inflation rate.
The fixed rate for I Bonds issued between March 2023 and April 2023 is 0.40%.
How long do I get the current I Bond interest rate for?
This fixed rate stays with those I Bonds throughout the 30 years that they earn interest.
The current semiannual inflation rate of 3.24% will reset every 6 months following the purchase, or renewal, of your I bond.
How is the I Bond Inflation Rate determined?
We are keeping a close eye on the latest CPI-U numbers, which you will see below determine the inflation rates for I bonds. CPI numbers were released on March 14, 2023.
CPI-U Data and May 2023 Inflation Rate Trend
| September 2022 CPI-U: | 296.808 |
| February 2023 CPI-U: | 300.840 |
| May 2023 Inflation Rate Trend: | 3.26% |
How does the current I Bond rate compare to historical rates?
When we compare the historical 6-month I Bond rates against 12-month Treasuries at the time we see that the 6-month I bond rate is an average of 0.31% lower.
At an initial rate of 6.89%, buying an I bond in March gets roughly 2.3% more compared to the 4.60% 12-month Treasury Bill rate (March 14, 2023).
You shouldn’t base your purchase just on the next 6 months of interest as you are required to hold the I Bond for at least 12 months.
The current renewal inflation rate is trending towards 3.26%. If that were to happen then buying the 12-month Treasury Bill in March 2023 would get roughly the same amount of interest over the next 12 months.
The difference is that you can get out of Treasury Bills before 12 months AND you don’t have to give up the prior 3 months’ interest if you cash out in the first 5 years. You could be subject to changes in the price of the Treasury Bill if you don’t hold it to maturity, however.
What to consider when buying I Bonds in 2023
You are required to hold I bonds for 12 months, yet you only know the rate you’ll get over the next 6 months.
There are 2 rates you need to keep in mind:
- The current rate for March 2023 purchases is 6.89%
- The rate after that, which will go into effect 6 months after your purchase is currently unknown
We’ll discuss how these 2 rates interact later on in the section “What’s the worst-case scenario?”
What you need to know about I Bonds
An I bond is a U.S. Government Savings bond that carries a fixed interest rate, plus an additional inflation adjuster, so that you get an inflation-adjusted real rate of return. In a world of inflation worries and few inflation-adjusted investments, the I bond is a great place to look for savers.
What are the details with an I bond?
- You have to hold them for 12 months minimum. You can’t cash out before then.
- If you cash out between the end of year one and the end of year five, you lose your prior three months interest as a penalty.
- You can only buy $10,000 per person, per year, and you have to do it at TreasuryDirect.gov
- I bonds are a great place for part of your emergency fund money
Bonus: Listen to our podcast with savings bond expert David Enna from TipsWatch.com on I bonds: US Series I Savings Bonds Simplified
Why I Bonds are so interesting right now
Many investors we talk to hadn’t heard of US Series I Savings Bonds (I Bonds) but have recently become aware of them because of the eye-popping yields they started offering in 2021.
Coverage began in earnest in May 2021 when the 6-month ‘inflation rate’ of 1.77% was announced (which is 3.54% annualized!).
WSJ: I Bonds – the safe high return trade hiding in plain sight & Investors Flock to ‘I Savings Bonds’ for Protection Against Inflation
NY Times: With inflation rising, consider the humdrum US Savings Bond
Then, in November 2021 I bond rates doubled to 7.12% and then 9.62% in May 2022!
Now, for purchases in March 2023 the rate is 6.89%!
And the projection for the May 2023 I Bond inflation rate is 3.26%!
How do I Bonds work?
When the US Government announces the 6-month inflation rate, you’ll be earning double that amount for half the year. Most interest rates are quoted in annual terms, but I bonds are quoted in semi-annual 6-month terms.
To calculate the annualized rate and to compare it to other rates just double the 6-month inflation rate, add in the fixed rate and then multiply the fixed rate times the inflation.
That last factor is quite small, so feel free to ignore it to get a rough sense of the current rate. To see the math on each factor go to Treasury Direct I Bonds Interest Rates.
The current composite rate of 6.89% is only earned for the first 6 months of your I Bond. Your March 2023 I Bonds purchase will turn your $100 into $103.45 just 6 months later. This is a 6.89% annualized rate.
When do I get the next interest rate with I Bonds?
Six months after your purchase you’ll get the new six-month inflation rate, still get the same fixed rate from the start of your I Bond, and your money will grow by your new composite rate.
Your interest will be added every six months to the principal of your I Bond, and you’ll get the next 6 months interest applied to that new principal amount. This is called semiannual compounding.
You are required to hold I bonds for 12 months, and you only know what the next 6 months will bring for interest, but what’s the worst that could happen?
What’s the worst-case scenario when I buy an I Bond?
The worst-case scenario for purchases in March 2023 is you earn 6.89% interest for the 6 months after you buy your I bond, followed by 0.0% after that (even though you would have a 0.40% fixed rate, if inflation turns negative your I Bond ‘composite rate’ could be 0.0%).
If this worst-case occurred, your March 2023 I Bond purchase would turn $100 into $103.45 6 months later, and still be worth $103.45 at the end of month 12.
If the rate 12 months from now is not to your liking, then you could cash out your I bond in 12 months, lose the 3 months prior interest (which would be 0.0% in this example), and still have $103.45.
That’s a 3.45% rate over the next 12 months!
You’re very likely to earn more than 3.45% over the next 12 months, though.
There have been 50 announced inflation rate adjustments since I bonds started in September 1998, and only 2 have been negative!
Yet even when the inflation rate is negative, I bond interest never goes below 0.0%!
Imagine if there was a 12-month CD that pays 3.45% with the chance that it goes higher! That’s how you could view your March I bonds purchase.
In fact, because 12-month CDs have a top rate of 4.75% you should consider other ways, besides I Bonds to earn more interest on your bank money. Many T Bill rates are compelling with the entire spectrum from 1 month to 1 year yielding over 4.50%!
What are the interest rates on investments that are similar to I Bonds?
(based on Bankrate.com from March 14, 2023) and Federal Reserve Data from March 14, 2023)
Unlike most of 2021 and 2022, I bond rates are now more in line with other similar time frame savings options.
What should I do if I’ve already maxed out I Bonds purchases for 2023?
Wondering what to do if you’ve already maxed out your I Bonds purchases for 2023? Consider short-term Treasury Bills!
For guidance on buying Treasury Bonds and Treasury Bills check out our blog: Get More Interest From Buying Treasury Bonds and Bills (T-Bills) Through Treasury Direct.
How to Get Strategic with Your I Bonds Purchase
David Enna, author of Tipswatch.com suggests being even more strategic, “You can buy an I Bond near the last day of the month and get credit for a full month’s interest, so you can effectively cut the one-year holding period to 11 months and a day, but realistically, you may want to extend the holding period to 14-15 months.
If you lose the prior three months of interest by cashing in early and are unhappy with the new 6-month rate, you would want to hold on for the full higher interest period in months six to twelve and wait for another full three months of lower interest before cashing in after month fifteen.”
How to Take Action On Your Interest Rate Money
When saving your money over a 12-month time frame I Bonds are just one of many investments to consider. Zvi Bodie likes to call I bonds “America’s Best Kept Investing Secret.” Consider your I bonds purchase not just for the short run, but also over the long run as part of a healthy emergency fund savings balance. To buy your I Bonds, go to TreasuryDirect.gov.
Bonus: Listen to the podcast with David Enna from TipsWatch.com for more in depth analysis on I bonds: US Series I Savings Bonds Simplified
Bonus: For guidance on buying Treasury Bonds and Treasury Bills check out our blog: Get More Interest From Buying Treasury Bonds and Bills (T-Bills) Through Treasury Direct.
More I Bonds Resources
- 9 Steps on how buy I Bonds by Jeremy Keil
- A Complete Guide to Investing in TIPS and I Bonds (2022) by David Stein with Money For the Rest of Us
- Podcast: US Series I Savings Bonds Simplified featuring David Enna from TipsWatch.com
- Treasury Direct: Series I Savings Bonds
- 3 Things You Should Know Before Choosing A Financial Advisor
- 7 Questions That Could Make or Break Your Retirement
- Free Retirement Video Course: Your 5 Step Retirement Income Plan
- Subscribe to Retirement Revealed on Google Podcasts
- Subscribe to Retirement Revealed on Apple Podcasts
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Disclosures:
This material is provided for informational purposes only and is not solely intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The views and strategies described may not be suitable for all investors. They also do not include all fees or expenses that may be incurred by investing in specific products. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. You cannot invest directly in an index. The opinions expressed are subject to change as subsequent conditions vary. Advisory services offered through Thrivent Advisor Network, LLC.
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