Series I bonds will offer a 4.3% interest rate through October, according to new rates issued by the U.S. Department of the Treasury on Friday.
The new rate marks a decline from the 6.89% annual returns Series I bonds were offering for the six months ending in April. That record rate prompted higher demand for the bonds, which offer inflation protection.
The new 4.3% rate comes as inflation has been coming down. The personal consumption expenditures price index, a key measure for inflation watched by the Federal Reserve, rose 0.3% in March and 4.6% for the year, according to new government data released on Friday.
The change in Series I bond rates is determined by another government inflation measure, the consumer price index, which rose 0.1% in March and 5% from a year ago.
Series I bonds earn both a fixed rate of interest and a rate that changes with inflation.
The new 4.3% rate includes a fixed rate of 0.90% and will be effective from May 1 to Oct. 31.
Series I bonds offer several advantages for investors, according to Ken Tumin, senior industry analyst at Lending Tree.
“They’re exempt from state and local income tax, which gives them a little edge over certificates of deposit,” Tumin said. “And you don’t have to worry about the federal income tax until you either redeem them or until they mature at 30 years.”
“It makes it very easy to hold them for an extended period of time,” he said.
Prior to the announcement, experts had predicted the I bond rate could fall below 4%.
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