Sitting on cash? Lock in this new Series I bond rate to protect your savings from inflation.

Yahoo

04-05-2025

The new rate for Series I bonds effective on May 1 may not shock you or tantalize you as an investment, but it may give you an alternative to stuffing cash under your mattress — or, even worse, keeping your cash in a savings account at one of the major national banks where you are still earning less than 1%.
For new I-bond purchases from May through October, the rate will be 3.98%. That is a combination of a 1.1% fixed rate that will stay with your bonds as long as you hold them and an annualized variable rate of 2.86%, which fluctuates with inflation.
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For savers, particularly retirees, it's that fixed rate that should draw you in. If you're one of those who have been scared by recent stock-market volatility and pulled money out of the market, I bonds are one of the places where you could keep your stash safe. It is at least twice as good as a big-bank savings account, even if it's not quite as good right now as other so-called safe investments.
You could, instead, put your money in a high-yield savings account at many online institutions that still pay more than 4%, but you should consider that those rates will rise and fall with Federal Reserve action. You could also buy TIPS, other Treasurys or CDs, which are available at various intervals. You can transact for all of those through your preferred financial institution (TIPS on the secondary market), while with I bonds you have to buy and hold them from the government directly via TreasuryDirect.gov, which is not always a pleasant experience or easy to manage.
Why are we still talking about Series I savings bonds in 2025? Because, as the TipsWatch blog heralded the new rate of these inflation-protected savings bonds, they are 'a predictable result in unpredictable times.'
If you want guaranteed safety of your principal, plus inflation protection, you can put up to $10,000 per individual per year into I bonds and hold them for up to 30 years. Your fixed rate will stay the same over time, but the inflation rate will vary. If you lock in now at 1.1%, that means if inflation goes up as high as it did before, when the variable rate went to 9.62% in 2022 (with a zero fixed rate), you would be earning 10.72%. It's not a bad deal.
When rates were up, I spoke with veteran I-bond holders who had bought in previous eras when the fixed rate was even higher — 3.6% in 2000 was the highest fixed rate since 1998 — and so they were making 13.22% for a time.
The drawback to stashing your cash in I bonds to avoid stock-market volatility is that you are locked into your purchase for a year, and if you cash out before five years, you lose three months' worth of interest. This will tie up a portion of your cash and bar you from being able to reinvest it if things turn around, which is the classic pitfall of trying to time the market.
You don't have to rush to game this out, because this I-bond rate will be around for the next six months. And, as TipsWatch points out, you can hold off a purchase until the end of a month and still get the interest for that month. So if you work things out by the end of May, you can still jump in then. If you want to wait and see what happens when rates shift next, you could keep watching until mid-October, when analysts will be able to gauge what the next rate will be.
The fixed rate has been slipping for the past two years. It was 1.3% from May 2023 to November 2024, and then shifted to 1.2%. When inflation is high, the fixed rate typically goes to zero, and when it is low, it goes higher. So if you look at the economy now and think inflation is likely to go up, then a 1% fixed rate will look like a good deal to you, especially if you also think the stock market is going to be down and we might be headed toward a recession. If you don't think any of that will happen, then there may be better places to put your cash, like index funds and Treasury bonds.
It's all about your investing and spending strategies. If you're worried that your investments weren't properly diversified in the first place, maybe you need more cash reserves and should be thinking about keeping one to three years' worth in safe investments so you protect your spending power. Putting some of your nest egg into I bonds would fulfill that purpose. Then that cash reserve is always there for you, keeping up with inflation and guaranteed not to falter. If that kind of safety will help you sleep at night, then you should put I bonds on your shopping list.
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