Market Minute
October 2022 – Scott Rosenquist, CFA®
U.S. Treasury Series I Bonds will reset their interest rate next month leaving investors until the end of October to earn 9.62% for the following six months. The rate applied to I bonds is based on the month it was issued and will change every six months going forward. The current rate is attractive relative to other short-term savings options. As of now, estimates for the new interest rate appear lower than 9.62% but we will see in early November. The fixed rate component is currently zero, so the entire interest rate is based on the inflation component.
Limitations do apply when purchasing I bonds, something I highlighted previously in my Series I Savings Bond Article and with more information available on the Treasury Direct Website. Individuals are limited to purchases of $10,000 a year but trusts can also be used for additional purchases of $10,000. I bonds have to be held for one year and any bonds redeemed before five years will not receive three months of interest.
Investor interest in I bonds has led to huge issuance by the Treasury as the inflation component reflects the current high inflation level. The Treasury website recently received an upgrade to help the user experience and website navigation. There has been a proposal to increase the cap on purchases of I bonds when inflation is above a certain level. Those developments along with upcoming inflation reports will be watched closely.
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