When you put money in a deposit account, fighting inflation is an important goal. Series I US Savings Bonds are designed to do just that by paying both a fixed interest rate and one that changes with the rate of inflation.
Currently, certificates of deposit (CDs) are challenging I bonds for their own inflation-fighting seat at the savings table for the first time in decades. Because both savings vehicles require you to set money aside untouched for a year or more, Deciding between these options involves trying to predict the future and other factors you need to consider.
Key points to remember
- In today’s economic climate, top-performing I bonds and CDs are competing to provide some of the best inflation-fighting returns available in savings vehicles.
- Choosing between the two involves comparing current and expected future interest rates, time to maturity and early withdrawal penalties.
- Ultimately, your personal financial situation and goals will be the deciding factors in determining what is best for you.
Comparison of I Bond and CD rates
Current CD yields are the highest in 15 years. Every day, Investopedia tracks the highest paying CDs with terms ranging from 3 months to 10 years and posts them to our online rankings to help you get the highest interest rate available.
As of June 16, the highest rate on a CD of any length is 5.65% APY, offered on a 6-month term. Additionally, several options pay at least a fixed 5.00% APY, for terms ranging from 3 months to 3 years.
Interest rates on I bonds are set for six months at a time, with the US Treasury announcing new semi-annual rates every May 1 and November 1. The term “bond I” refers to the fact that the rate is fixed at both a fixed rate and a variable rate based on the latest rate of inflation, as measured in the United States by the consumer price index (CPI).
I bonds currently pay 4.30% and will continue to do so for all bonds purchased through October 31. It is important to note that buying an I bond will pay the current rate for the next six months, starting on the first day of the month you buy it. This means that if you buy an I bond today (June 16), it will pay 4.30% until December 1, 2023, and then the November 2023 rate until June 1, 2024. This despite the announcement of new rates on November 1, 2023. , and May 1, 2024.
By law, you cannot withdraw funds from an I bond until 12 months after the date of purchase.
An I bond purchased today cannot be redeemed until June 16, 2024. Alternatively, you can purchase a one-year CD paying 5.50% APY and then redeem that CD on June 16, 2024, or purchase another CD at prices then in effect. rate. Other options include opening a 6-month CD with an APY of 5.65% – if you think rates will go up – then opening another 6-month CD when the first comes in. maturity on December 16, 2023.
To choose from this somewhat dizzying array of options, you’ll need your best estimate of what interest rates will do in the future. This is why a simple comparison of interest rates today is not enough to complete the selection process.