Treasury sets next six-month Series I bond rate at 5.51%

The U.S. Department of the Treasury has announced updated rates for Series I savings bonds.

Bonds bought now will earn 5.51% annual interest for the next six months, replacing the 4.26% yield available on purchases made in the prior period.

The new rate includes a variable component of 4.08% tied to inflation data and a fixed component of 1.40%. The fixed rate is higher than the 0.90% announced earlier and is the highest since 2006.

Together, the two parts produce a composite I bond rate of 5.51% after rounding, according to the Treasury.

During the post-pandemic inflation surge, I bond rates reached a record 9.62% in May 2022, drawing millions of dollars from investors into the government-backed, nearly risk-free investment.

As inflation eased and yields declined, many short-term investors cashed out. But as inflation pressures rise again, some investors may return, experts say.

I bonds are a lot more attractive at this point.

The consumer price index rose 3.7% in September from a year earlier, up from an annual pace of 3.4% in August, according to the Bureau of Labor Statistics.

Higher inflation in September was partly driven by the Iran war, which pushed up gasoline and energy costs. Economists also point to President Donald Trump's tariffs, new artificial intelligence data centers and stronger travel demand as contributors to rising prices.

Consumers also expect inflation to keep climbing. In September, the one-year inflation outlook increased to 3.9%, the highest level in more than three years, according to a New York Fed survey released in early October.

How I bond rates work

I bond rates consist of variable and fixed portions, and the Treasury adjusts both every six months.

The variable rate is linked to inflation, using the consumer price index's six-month change, and remains unchanged for six months after purchase, regardless of the Treasury's next update.

The fixed rate does not change after purchase. The Treasury does not reveal how it determines that rate, which makes it difficult to forecast.

Some experts think the fixed rate may be influenced by real, or inflation-adjusted, yields on five-year TIPS, according to Ken Tumin, founder of DepositQuest.com, a blog that tracks I bond rates and other deposit accounts.

There's some uncertainty there.

How the change affects current I bond investors

If you already own I bonds, rate changes follow a six-month schedule based on the date you bought them.

Once you have held I bonds for six months, the variable yield switches to the newly announced rate. The fixed rate, however, stays the same for as long as you own the bond.

For example, if you bought I bonds when the variable rate was still 3.12% and the fixed rate was 0.9%, the variable portion would later move to 3.34%, while your fixed rate would remain 0.9%.

I bonds can earn interest for as long as 30 years, or for a shorter period if you redeem them early. However, they cannot be cashed in during the first year after purchase. If you redeem them within five years, you forfeit the last three months of interest.