Here's why it could be better to buy Series I bonds before May, experts say (2024)

FAQs

Here's why it could be better to buy Series I bonds before May, experts say? ›

If you buy I bonds now, you'll receive 5.27% annual interest for six months and the new May rate for the following six months. He suggests buying a few days before April 30. Enna expects the fixed rate will be 1.2% or 1.3% in May, based on the half-year average of real yields for 5- and 10-year TIPS.

The cons of investing in I-bonds

There's actually a limit on how much you can invest in I-bonds per year. The annual maximum in purchases is $10,000 worth of electronic I-bonds, although in some cases, you may be able to purchase an additional $5,000 worth of paper I-bonds using your tax refund.

For I bonds issued between May 1, 2024 and Oct. 31, 2024, the fixed interest rate is 1.3%. A second interest component is based on inflation rates, and it resets every six months. It most recently reset in May and is currently 2.96%, down from 3.94% last November.

I bonds are a safe investment backed by the U.S. government that protects against inflation with a combination of fixed and variable interest rates. While I bonds offer tax advantages and low minimum investment amounts, they have downsides, including a penalty for early redemption and fixed rates that can be low.

The initial yield is only good for the first six months you own the bond. After that, the investment acts like any other variable vehicle, meaning rates could go down and you have no control over it. And if you wait until, say, 2026 to buy an I bond, the initial rate could be well below current levels.

You can count on a Series I bond to hold its value; that is, the bond's redemption value will not decline.

Note that I bonds must be held for at least 12 months before they can be sold. If you hold them for less than five years, you will forfeit three months of interest. You can buy more in TIPS, and their liquidity is an attractive option for some investors. Plus, TIPS pay a fixed interest rate semiannually.

Starting yields, potential rate cuts and a return to contrasting performance for stocks and bonds could mean an attractive environment for fixed income in 2024.

Interest earned on I bonds is exempt from state and local tax but subject to federal tax. The interest is taxed in the year the bond is redeemed or reaches maturity, whichever comes first.

Can I cash it in before 30 years? You can cash in (redeem) your I bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest. For example, if you cash in the bond after 18 months, you get the first 15 months of interest.

What are the disadvantages of TreasuryDirect? ›

Securities purchased through TreasuryDirect cannot be sold in the secondary market before they mature. This lack of liquidity could be a disadvantage for investors who may need to access their investment capital before the securities' maturity.

You could lose out on major returns by only investing in bonds. While assuming less risk may seem like a great idea in theory, you could miss out on some major earnings. “A bondholder can only receive what is promised—nothing more,” says Robert R.

Bottom line. I bonds, with their inflation-adjusted return, safeguard the investor's purchasing power during periods of high inflation. On the other hand, EE Bonds offer predictable returns with a fixed-interest rate and a guaranteed doubling of value if held for 20 years.