Series I bonds will pay 6.89% annual interest through April 2023, down from the 9.62% annual rate offered since May.
The rate is the third highest since I bonds were introduced in 1998 and investors can lock in the rate for six months before the end of April.
Ken Tumin, founder and editor of DepositAccounts.com, said that the rate of 6.89% is very competitive for the I bond.
Backed by the U.S. government, I bonds don't lose value and earn monthly interest with two parts: a fixed rate and variable rate.
Tumin said that the new rate includes a 0.4% increase for the fixed portion of the rate due to higher Treasury Inflation Protection Securities yields. Demand for Series I bonds crashed TreasuryDirect ahead of a key deadline to secure a 9.62 rate. It's getting a new look.
Every May and November there are new rates announced by Treasury Direct.
You can purchase the assets online, but only for a limited time. You can use your tax refunds to purchase bonds.
The website crashed after investors rushed to lock in the annual rate for six months. The traffic put a lot of strain on the 20-year-old Treasury Direct application.
Despite technical issues, TreasuryDirect sold a record amount of bonds on October 28.
There are several drawbacks to the current I bond rate.
If you redeem before five years, you will lose the previous three months of interest.
Christopher Flis is the founder of Resilient Asset Management in Memphis.
The variable portion of I bond interest could change in May. He said that the Federal Reserve is not going to rest until they get 2% inflation.
The yield difference between I bonds and other government backed assets is getting smaller as interest rates increase. The attractiveness of these assets is decreasing.
Flis wouldn't pick I bonds as the next option even with excess money.
He said that long-term investors should look to the stock market for the core of their portfolio. I don't bond.
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