larryhw | iStock / 360 | Getty Images
The annual interest rate on newly purchased Series I bonds could top 5% in November — and there are several things to consider before adding more to your portfolio, experts say.
The interest rate for new purchases in November could be higher than the current 4.3% rate for I bonds purchased through Oct. 31, leaving some investors wondering whether to buy more.
“It’s definitely worth waiting until November to make a decision,” said Ken Tumin, founder and publisher of DepositAccounts.com Traces that I makeamong other assets.
The U.S. Treasury updates I-bond interest rates every May and November, and there is also two parts to I bond yields: a variable and a fixed portion.
The variable interest rate is adjusted for inflation every six months and the Treasury can also change it fixed rate or leave it alone. (The fixed interest rate remains the same for investors after purchase and the variable interest rate adjusts every six months based on the investor’s purchase date.)
Based on inflation, the variable interest rate is likely to rise from 3.38% to 3.94% in November. However, the current fixed interest rate of 0.9% could also rise based on 10-year Treasury Inflation Protected Securities (TIPS) yields, according to David Enna, founder of Tipswatch.com, a tracking website. I owe interest and TIPS.
Higher fixed interest rates could be attractive for longer-term investors, experts say. However, you would need to purchase new I bonds between November 1 and April 30 to benefit from the increased fixed interest rate.
Other competitive short-term options
While I bonds remain an attractive option for long-term investors, the choice may be more difficult for shorter-term goals, experts say.
One of the disadvantages of newly purchased I-bonds is that you won’t have access to the money for at least a year and will lose three months’ interest if you withdraw the money within five years.
According to DepositAccounts.com, the top 1 percent average for high-yield savings accounts is currently 4.92 percent and the top 1 percent average for one-year certificates of deposit is 5.72 percent as of October 16.
Short-term cash in high-yield savings accounts could outperform I-bonds considering the three-month interest penalty, Tumin said. “And if you can get top dollar, one-year CDs are a better deal,” he said.
One-month to one-year Treasury bills are now being offered at well over 5% as of Oct. 16, and the largest money market funds are paying interest at a similar rate, it says Crane data.