How To Buy I Bonds in May 2023

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Urgent Update: May 2023 I Bond Rate Announced at 4.30%

The May 2023 I Bond fixed rate is 0.90%. This rate lasts for the 30 year life of the bond you purchase between now and October 2023.

Now that the inflation rate has dropped almost in half, you may be wondering when to cash out your I Bonds. If so, check out our post When Should I Cash Out My I Bonds?

The May 2023 I Bond Composite Rate

The May 2023 I bond composite rate is 4.30% (US Treasury) which is 2.15% earned over 6 months.

What will the May 2023 I Bond inflation rate be?

The May 2023 I Bond inflation rate is announced at 3.38%* based on the March 2023 CPI-U data.

How is the I Bond Composite Rate Determined?

The composite rate is a combination of the fixed rate and the semiannual inflation rate.

The fixed rate for I Bonds issued in May 2023 is 0.90%.

The semi-annual inflation rate is 3.38%.

When you combine the two, and the fixed rate itself gets an inflation adjustment, you get the composite rate of 4.30%. Here is the exact math on the I Bond composite rate.

How long do I get the current I Bond interest rate for?

This fixed rate stays with those I Bonds throughout the 30 years that they earn interest.

The current semiannual inflation rate of 3.38% will reset every 6 months following the purchase, or renewal, of your I bond.

How is the I Bond Inflation Rate determined?

We are keeping a close eye on the latest CPI-U numbers, which you will see below determine the inflation rates for I bonds. CPI numbers were released on April 12, 2023.

CPI-U Data and May 2023 Inflation Rate

September 2022 CPI-U: 296.808
March 2023 CPI-U: 301.836
May 2023 Inflation Rate: 3.38%
May 2023 Fixed Rate: 0.90%
May 2023 I Bond Composite Rate: 4.30%

*May 2023 Inflation Rate = [(301.836/296.808)^-1]*2 = 3.38%

How does the current I Bond rate compare to historical rates?

When we compare the historical 6-month I Bond rates against 12-month Treasuries at the time we see that the 6-month I bond rate is an average of 0.31% lower.

At an initial rate of 4.30%, buying an I bond in April gets roughly 0.5% less compared to the 4.80% 12-month Treasury Bill rate (April 27, 2023).

Unlike 2021 and 2022, I Bond rates are more in line with other similar interest rate products.

One big difference between a Treasury Bill and the I Bond is that you can get out of Treasury Bills before 12 months AND you don’t have to give up the prior 3 months’ interest if you cash out in the first 5 years. You could be subject to changes in the price of the Treasury Bill if you don’t hold it to maturity, however.

What to consider when buying I Bonds in May 2023

You are required to hold I bonds for 12 months, yet you generally only know the rate you’ll get over the next 6 months.

There are 2 rates you need to keep in mind:

  • The current rate for May 2023 purchases is 4.30%
  • The rate after that, which will go into effect 6 months after your purchase, and you don’t know that rate

We’ll discuss how these 2 rates interact later on in the section “What’s the worst-case scenario?”

It’s nice to buy an I Bond when you know the full 12-month rate, and your next opportunity to know your full 12-month rate is in late October.

What you need to know about I Bonds

An I bond is a U.S. Government Savings bond that carries a fixed interest rate, plus an additional inflation adjuster, so that you get an inflation-adjusted real rate of return. In a world of inflation worries and few inflation-adjusted investments, the I bond is a great place to look for savers.

What are the details with an I Bond?

  • You have to hold them for 12 months minimum. You can’t cash out before then.
  • If you cash out between the end of year one and the end of year five, you lose your prior three months interest as a penalty.
  • You can only buy $10,000 per person, per year, and you have to do it at TreasuryDirect.gov
  • I bonds are a great place for part of your emergency fund money

Bonus: Listen to our podcast with savings bond expert David Enna from TipsWatch.com on I bonds: US Series I Savings Bonds Simplified

Free Video Course: Your 5 Step Retirement Income Plan

Why I Bonds are so interesting right now

Many investors we talk to hadn’t heard of US Series I Savings Bonds (I Bonds) but have recently become aware of them because of the eye-popping yields they started offering in 2021.

Coverage began in earnest in May 2021 when the 6-month ‘inflation rate’ of 1.77% was announced (which is 3.54% annualized!).

WSJ: I Bonds – the safe high return trade hiding in plain sight & Investors Flock to ‘I Savings Bonds’ for Protection Against Inflation

NY Times: With inflation rising, consider the humdrum US Savings Bond

Then, in November 2021 I bond rates doubled to 7.12% and then 9.62% in May 2022!

Now, for purchases in May 2023 the rate is 4.30%.

More importantly, the fixed rate is 0.90%. The fixed rate hasn’t been this high since April 2008.

How do I Bonds work?

When the US Government announces the 6-month inflation rate, you’ll be earning double that amount for half the year. Most interest rates are quoted in annual terms, but I bonds are quoted in semi-annual 6-month terms.

To calculate the annualized rate and to compare it to other rates just double the 6-month inflation rate, add in the fixed rate and then multiply the fixed rate times the inflation.

That last factor is quite small, so feel free to ignore it to get a rough sense of the current rate. To see the math on each factor go to Treasury Direct I Bonds Interest Rates.

The current composite rate of 4.30% is only earned for the first 6 months of your I Bond. Your May 2023 I Bonds purchase will turn your $100 into $102.15 just 6 months later. This is a 4.30% annualized rate.

When do I get the next interest rate with I Bonds?

Six months after your purchase you’ll get the new six-month inflation rate, still get the same fixed rate from the start of your I Bond, and your money will grow by your new composite rate.

Your interest will be added every six months to the principal of your I Bond, and you’ll get the next 6 months interest applied to that new principal amount. This is called semiannual compounding.

You are required to hold I bonds for 12 months, and you only know what the next 6 months will bring for interest, but what’s the worst that could happen?

What’s the worst-case scenario when I buy an I Bond?

The worst-case scenario for purchases in May 2023 is you earn 4.30% interest for the 6 months after you buy your I bond, followed by 0% after that.

If this worst-case occurred, your May 2023 I Bond purchase would turn $100 into $102.15 6 months later. The lowest renewal rate you could get is 0.0% so it is possible that your I Bond doesn’t earn any interest the second 6 months.

When the inflation rate is negative, that rate goes against your fixed rate, with the promise that your semi-annual composite rate will never go below 0. The 0.0% renewal rate may be unlikely – out of 51 announced inflation rates in history, only 2 have been negative!

If the next renewal rate, 12 months after your purchase, is not to your liking, then you could cash out your I bond in 12 months, lose the 3 months prior interest (of 0% in this worst-case scenario) and still keep the 2.15% you earned over the first 6 months.

When you buy an I Bond today you are only guaranteed 2.15% over the next 12 months. You are guaranteed, however, that your renewal rates will be 0.90% above inflation for the 30 year life of your I Bond.

Since 12-month CDs have a top rate of 5.25% (April 28, 2023) you should consider other ways, besides I Bonds to earn more interest on your bank money. Many T Bill rates are compelling with every rate from 2 months to 1 year yielding over 4.80%!

What are the interest rates on investments that are similar to I Bonds?

(based on Bankrate.com from April 28, 2023) and Federal Reserve Data from April 17, 2023)

Unlike most of 2021 and 2022, I bond rates are now more in line with other similar time frame savings options.

What should I do if I’ve already maxed out I Bonds purchases for 2023?

Wondering what to do if you’ve already maxed out your I Bonds purchases for 2023? You may want to look into the gift box method for buying more than $10,000 in I Bonds.

If you don’t want any more I Bonds, consider short-term Treasury Bills!

For guidance on buying Treasury Bonds and Treasury Bills check out our blog: Get More Interest From Buying Treasury Bonds and Bills (T-Bills) Through Treasury Direct.

How to Get Strategic with Your I Bonds Purchase

Since you can get the same 0.90% fixed rate on your I Bond purchase in May 2023 through October 2023 it’s likely best to wait until October 2023 so that you can get a better sense of what your future renewal rates will be, as well as what rates you can get on similar interest rate investments.

David Enna, author of Tipswatch.com suggests being even more strategic, “You can buy an I Bond near the last day of the month and get credit for a full month’s interest, so you can effectively cut the one-year holding period to 11 months and a day, but realistically, you may want to extend the holding period to 14-15 months.

If you lose the prior three months of interest by cashing in early and are unhappy with the new 6-month rate, you would want to hold on for the full higher interest period in months six to twelve and wait for another full three months of lower interest before cashing in after month fifteen.”

How to Take Action On Your Interest Rate Money

When saving your money over a 12-month time frame I Bonds are just one of many investments to consider. Zvi Bodie likes to call I bonds “America’s Best Kept Investing Secret.” Consider your I bonds purchase not just for the short run, but also over the long run as part of a healthy emergency fund savings balance. To buy your I Bonds, go to TreasuryDirect.gov.

Bonus: Listen to the podcast with David Enna from TipsWatch.com for more in depth analysis on I bonds: US Series I Savings Bonds Simplified

Bonus: For guidance on buying Treasury Bonds and Treasury Bills check out our blog: Get More Interest From Buying Treasury Bonds and Bills (T-Bills) Through Treasury Direct.

Free Video Course: Your 5 Step Retirement Income Plan

More I Bonds Resources

Related: What Most People Get Wrong About Social Security