Series I Savings Bond Rate Update, November 2024

The United States Treasury set a new interest rate for Series I United States Savings Bonds. From November 1, 2024 through April 30, 2025:

• the fixed rate for new savings bond purchases is 1.20%; and
• the semi-annual, inflation-indexed rate is 0.95%.

Series I Savings Bonds purchased between now and October 31, 2024 will earn interest at an annualized rate of 3.11% 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 once their current rate period expires. For example, if you purchased a Series I bond on May 29, 2024 you'll earn 4.28% until November 29, 2024. Then your bond will reset to a new, lower rate of 3.21%. That's a mix of the previous base rate of 1.3% and the inflation-indexed portion of 0.95%.

A good fixed rate

The good news is that inflation has slowed significantly. Prices are still going up, but at a slower rate. As a result, the inflation-indexed rate is down 0.53 of a percentage point. Alas, that means your savings bonds will earn a lower rate of interest.

On the other hand, the base rate falls toward the higher end of historical rates (PDF document). If inflation rises again over the next 30 years, bonds that you buy now could earn significantly more later. There is a risk, however, that a period of deflation (falling prices) means that your Series I Bonds earn the base rate and nothing more.

Should you chase higher yields?

Series I Bonds offer an excellent hedge against inflation. But there are opportunities to earn a higher yield.

Ten year treasury notes currently offer a yield of 3.875%. Thirty year bonds now pay 4.250%. If your goal is income now instead of accumulation for later, bonds and notes are good options.

If you want yield, plus liquidity, try money/money market funds such as Fidelity's Government Money Market Fund (SPAXX) or Vanguard's Treasury Money Market Fund (VUSXX). Keep in mind, however, that the interest paid by money market mutual funds fluctuates with market rates.

If you can tolerate a bit more risk, try Bank of America Series L or Wells Fargo Series L preferred shares. Bank of America Series L for example, currently offers a 5.93% yield. Wells Fargo Series L preferred shares offer a yield around 6%. (Read more about preferred shares.) You do run the risk of their value declining, however. Both are trading at a premium to their par value.

If you have a bit more risk tolerance, you might prefer Fidelity's Floating Rate High Income Fund (FFRHX). Its yield has exceeded 8% for the last couple of months. FFRHX also pays distributions monthly instead of quarterly or semi-annually.

That said, there are a few of advantages to sticking with Series I savings bonds:

1. The interest compounds. Savings bonds work much like a savings account. That isn't true for other kinds of bonds or for preferred shares.
2. You only need pay income taxes on accrued interest when you redeem your bond. With other investments, you pay taxes on your income in the year it was earned. (Note: you can pay income tax on savings bond interest in the year it's earned. You have to pay in the year you redeem them.)
3. They're exempt from state and local income tax. You'll still need to pay federal income tax when you redeem you bonds, but you'll save on state income taxes.

Whether you continue to buy savings bonds depends very much on your goals and time horizon.

Disclaimer

As always, remember: I'm not a financial professional, I just read a lot. Don't be afraid to consult a financial advisor.