U.S. I bonds now offer their highest fixed rate in two decades. What to know

The latest interest rate for federal I bonds took effect on Nov. 1, and it includes a fixed-rate portion that is the strongest in 20 years.

That makes these bonds especially appealing for long-term savers, including me.

I bonds share some similarities with bank certificates of deposit, but they also come with important differences and several advantages.

Series I Savings Bonds, or I bonds, are U.S. savings bonds designed to protect against inflation, though they can also outpace it. The rate on these bonds combines a fixed rate set when the bond is purchased with an inflation rate that changes every six months. The current combined rate is 5.51 percent.

That is already a solid return, and it is even more attractive because the earnings are exempt from state and local taxes. At an annualized 5.51 percent, I bonds pay more than most bank CDs.

The fixed-rate part is what makes today’s I bonds stand out.

At present, I bond holders are earning between 4.08 and 7.75 percent, with the difference driven entirely by the fixed rate locked in at purchase. The inflation rate resets twice a year, but the fixed rate remains unchanged for the life of the bond, which can be as long as 30 years.

The highest-earning I bond holders bought when the fixed rate was 3.6 percent in 2000. The lowest-earning holders bought during stretches when the fixed rate was zero, including periods from May 2020 to November 2022, November 2016 to May 2017, November 2014 to May 2015, November 2010 to May 2013, and May to November 2008.

The pattern makes one thing clear: a zero-percent fixed rate is not unusual for I bonds.

To find a better fixed rate than the one available now, you would need to go back to 2002. If you already own I bonds with a zero or very low fixed rate, consider selling them and buying the newer issue with the higher fixed rate.