Series I savings bonds are one of money expert Clark Howard’s favorite vehicles to save money and have been for a long time.
As with many things, you’ll need to be strategic to make them work for your wallet. This is because Series I (“I” is for inflation) savings bonds reset in six-month increments based on when you purchased them. For example, if you bought an I bond in January, the rate would reset every July and January.
Make This Money Move With Your Series I Savings Bond
Because I bonds are calculated on both a fixed rate and variable inflation rate, when things change enough, your strategy has to change as well. And that’s why Clark says it may be time to re-buy Series I savings bonds if you bought during a certain period.
For you to understand fully, we’ll need to rewind the calendar a couple of years:
Series I Savings Bonds: How Rates Were 2 Years Ago
In May 2022, the Treasury Department, which issues Series I savings bonds, announced an exciting new composite rate: 9.62%. The rate was for I bonds purchased from May through October 2022.
“The composite rate combines a 0.00% fixed rate of return with the 9.62% annualized rate of inflation,” the Treasury said in a news release at the time.
So, while the composite rate was 9.62%, the fixed rate was zero, meaning you would only earn money on the composite rate — but what a rate it was!
“There was such a frenzy buying these inflation bonds two years ago when the interest rate went to 9.62%,” Clark says, “that people were buying them in such large numbers that the U.S. Treasury computer system crashed. It was as if they were trying to buy Taylor Swift tickets or something!”
Series I Savings Bonds: How Rates Are Now
Fast forward a couple of years, and the situation is different, Clark says.
“The most recent reset dropped the inflation rate that you’re receiving to 2.98%,” Clark says. That’s not a very competitive rate for your money right now when you consider:
- You can buy a CD and earn 4 to 5% on your money.
- A high-yield savings account can earn you around 5%.
- A money market account can fetch you over 5%.
Not all Series I savings bond owners are participating in those returns, Clark says.
“People who bought Series I savings bonds two years ago, they were earning 9%, but today [and] for the next six months, they’re earning 2.98%,” Clark says. You get 2.98% when you subtract the 1.30% fixed rate from the 4.28% composite rate announced in the latest news release from the Treasury.
Series I Savings Bonds: Should You Buy Now?
So the rate has reset to 4.28% and you’re holding Series I bonds that are only earning 2.98% today. You may have a question that goes something like this: How are the new Series I savings bonds earning more than mine for the same interest-earning period?
“Because when you bought a Series I bond at the cycle before,” Clark says, “you were only receiving what was then the current rate of inflation. You weren’t receiving a bonus above the rate of inflation. And that will stay the same for your full 30 years in it.”
To put it another way, the reset includes a combined fixed interest and variable inflation rate. The inflation rate is in addition to the fixed rate.
As mentioned earlier, the rate from May 2022 had a 0.00% fixed rate. Nothing.
“Whereas somebody who buys today gets the rate of inflation plus every six months for the next 30 years they get 1.30% on an annual basis,” Clark says. “So that 1.30% stays the same every six-month cycle, for the next 60 cycles — 30 years — and then they get whatever the current inflation rate is, which is calculated by the Federal Reserve.”
So, yes, if this is your situation, Clark wants you to sell your old Series I savings bonds and re-buy them.
Series I Savings Bonds: What To Do With Your Old Bonds
Note that there’s a penalty for turning in Series I savings bonds before they mature, but Clark says there’s some math that could work in your favor if you do the following two-fold action:
- Sell your old I bond and accept the penalty.
- Re-buy them at the new rate.
Sell Your Old I Bond and Accept the Penalty
“If you dump the Series I savings bonds that you bought within the last five years, and you bail out, you lose the last three months of interest. You are going to lose the annual rate of 2.98% or the semi-annual rate of 1.49% interest,” Clark says. “You’ll lose that from the bond.”
Rebuy the Higher-Interest Earning Savings Bonds
“But then you could turn right around and re-buy the bond and you’ll make that up pretty quickly because if you’re going to hold it for a long term moving forward, you’ll earn 1.3% — which you don’t with those old bonds — plus the rate of inflation, which is a much better deal,” Clark says.
To buy Series I savings bonds online, visit TreasuryDirect.gov and look for the “Savings Bonds” tab on the homepage. Click “Buy a Bond” to find the I Bonds information.
Final Thoughts
If you’re holding onto Series I savings bonds that you bought in May 2022, they’re earning about a third of what they were at the time of purchase. Clark says it’s time to sell them and re-buy new ones.
“The advantage of owning the new ones vs. the old ones is so large that you want to forfeit a 90-day cycle of interest at today’s lower inflation-earning rate of 2.98%,” Clark says. “If you forfeit that, you can then re-buy them and earn at the higher rate, because you’re getting the additional 1.3%.”
Want more money-earning tips? Read our in-depth guide on Series I savings bonds.
