Series I Savings Bonds Update
Series I Savings Bonds (commonly referred to as “I Bonds”), issued by the U.S. Government through Treasury Direct, are a popular investment choice for many individuals looking to secure their savings against inflation while enjoying a government-backed guarantee.
We have written blogs about I Bonds in the past and you can read them here and here if you need a refresher.
For May 2025, the composite interest rate is 3.98% consisting of a 1.10% fixed rate and a 1.43% semiannual inflation component. Details on how the rate is calculated and other information can be found here.
Recent History of Series I Bonds Rates
Series I Bonds became incredibly popular in 2022 amidst decades-high inflation in the US. The number of Treasury Direct accounts exploded as people realized you could earn almost 10% on a Government guaranteed bond, although that rate only applied for six months.
The table below shows the fixed rate, inflation adjustment, and composite rates for Series I Bonds since they gained popularity in 2022. For a longer history of rates, click here.
As US interest rates have remained high but year-over-year inflation has come down, the fixed rates on newer issue Series I Bonds have increased while the inflation adjustment has declined.
The 3.98% composite rate for the May ’25 issue is higher than the Nov ’24 when it was issued but is lower than the May ’24 when it was issued. The 1.10% fixed rate is the lowest since May ‘23 but much higher than the 2022 issues. The recent fixed rates over 1% are the highest fixed rates since 2007. Compared to prior issue Bonds with lower fixed rates, these will always pay more when the inflation adjustment is reset.
Series I Bonds bought between May and October ’22 paid 9.62% interest at the time; entirely driven by the inflation adjustment. However, since the inflation component resets every six months and the fixed rate was 0% for that issue, those Bonds currently pay just 2.86% compared with the 3.98% on the most recent May ’25 issue.
What To Do Now?
Whether you should buy, continue holding, or redeem your Series I Bonds is a discussion you should have with your Financial Advisor.
There are several considerations including: the period in which you bought your I Bonds; your expected holding period; your need for liquidity; your marginal tax rate; and other factors. We are happy to discuss any of these considerations with our clients.
Advantages of Series I Bonds include:
- An inflation adjustment component.
- Interestis exempt from state and local taxes.
- Federal taxes on interest are not due until the bonds are sold, which could be as long as 30 years in the future.
- Guaranteed by the Federal Government in any amount.
- Liquid twelve months after purchase.
Disadvantages of I Bonds include:
- Mustbe purchased through a Treasury Direct account, an initially more complicated process than depositing funds into a bank account.
- Once funds are used to purchase an I Bond, the funds are unavailable for 12 months. After 12 months, that bond may be redeemed at any time.
- There is a $10,000 per person per year limit on I Bond purchases.
- I Bonds cannot be purchased in an IRA (nor would you want to because of the tax advantages mentioned above).
- If you redeem a bond within five years of purchasing it, you lose three months of interest.
Helpful Links
- https://www.treasurydirect.gov/savings-bonds/i-bonds/
- https://www.treasurydirect.gov/files/savings-bonds/i-bond-rate-chart.pdf
- https://www.treasurydirect.gov/indiv/tools-videos/redeem-electronic-bonds/