Series I Savings Bond Rate Update, May 2023

The United States Treasury set a new interest rate for Series I United States Savings Bonds. From May 1, 2023 through October 31, 2023:

• the fixed rate for new savings bond purchases is 0.9%; and
• the semi-annual, inflation-indexed rate is 1.69%.

Series I Savings Bonds purchased between now and October 31, 2023 will earn interest at an annualized rate of 4.30% for six months following their purchase.

Series I Savings Bonds that you currently own will continue to earn interest at their base rate, plus the new inflation rate. For savings bonds purchased between November 1, 2022 and April 30, 2023, that will be 3.79% (0.4% fixed rate plus the 1.69% inflation rate). If you were fortunate enough to buy Series I bonds in September 2007, your bonds will earn 4.70% interest (1.30% fixed rate, plus the 1.69% inflation rate).¹

The Treasury Department uses the following formula to calculate the annualized interest rate for Series I bonds.

Use the JavaScript below to calculate the composite rate for existing bonds.

/**
 * fixed_rate and inflation_rate should be floats, e.g. 0.012 for 1.2% and not 1.2. 
 */

export const i_bond_composite_rate = (fixed_rate, inflation_rate, as_percentage = true) => {
  var rate = fixed_rate + ((2 * inflation_rate) + (fixed_rate * inflation_rate));
  rate = rate.toPrecision(3);
  return as_percentage ? `${(rate * 100).toFixed(2)}%` : rate;
}

/* Example usage */
console.log(i_bond_composite_rate(0.0130, 0.0169)); // Outputs 4.70%

When as_percentage, is true, this function returns a formatted string. Otherwise, it returns a float.

Slowing inflation, and a good fixed rate

The good news: the new rate means inflation has slowed quite a bit. The bad news: your current savings bonds will earn less interest for the next six months.

Still, the fixed rate is now 0.9%. That's closer to the rates we saw fifteen to twenty years ago. If inflation rises again between now and 2053, savings bonds that you buy now could earn significantly more later. Of course, a period of deflation could mean that your bonds will accrue 0.9% and nothing more.

Should you redeem your bonds and put that money elsewhere?

Savings bonds work a bit like interest in a bank savings account. Interest payments get added to your bond principal. A $100 savings bond with a 4.3% interest rate generates about $2.10 in interest after six months. For the following six month period, you'll earn interest on $102.10 of principal.

Whether you should redeem your savings bonds depends on three things:

1. Have you held your bonds for more than one year?
2. Can you get a higher return elsewhere for a similar level of risk?
3. Do you need the money now?

You can't redeem your savings bonds for a year after purchase. If you redeem them within five years, you'll forfeit the previous three months of interest payments. Be aware that you'll also owe taxes on the interest earned in the year you redeem your savings bonds.

If you have redeemable bonds and don't need the money, my suggestion is do nothing. Even at 3.79% or 3.38%, Series I bonds still offer a higher yield than most savings accounts.² Series I bonds rates are also competitive with current dividend yields, but with zero price volatility.