I Bonds dip in November: What new 6.89% rate means for buyers

New I Bonds bought in November through April 2023 won't be offering a shockingly high interest rate that's close to 10% anymore. But the latest inflation-adjusted rate continues to beat many everyday savings accounts and certificates of deposit.

The Treasury Department announced a 6.89% annualized rate for I Bonds. That rate applies for the first six months after the Series I Savings Bond is purchased.

Essentially, you're getting a bit more than 3% over a semiannual basis or six months based on the latest annualized rate for I Bonds.

The estimated 12-month rate for many savers would be about 8% after combining the 9.62% rate for the first six months, if they locked in that rate earlier, and the new inflation adjustment for the next six months. Interest is compounded semiannually. The 9.62% rate was available on new I Bonds issued from May through October and applies at some point in the process to older I Bonds, as well.

What's new about the latest offering is that I Bonds issued from November through April 2023 now carry a 0.4% fixed rate, which is a floor rate that applies for the life of the bond. The inflation-adjusted rate will be added on top of the fixed rate. The older bonds issued from May through October have a 0% fixed rate.

The newest inflation adjusted rate is 3.24% beginning in November through April 30. The inflation adjusted rate was 4.81% for May through October — the highest inflation adjustment in the I Bond's 24-year history.

The latest inflation rate of 3.24% is the third highest in the I Bond's history.

Before inflation kicked off, it wasn't unusual to see inflation-adjusted rates on I Bonds in a range of 0.5% to 1.2%.

A 0% fixed rate applies to I Bonds issued during various years, including I Bonds issued from May 2020 through October 2022.

Many I Bonds issued at various times earlier in the program have far more generous fixed rates that range from 2% to 3.6% — and they're definitely worth holding onto.

I Bonds issued from May 1999 through October 1999, for example, have a fixed rate of 3.3% for the life of the bond. An inflation adjustment is added on top of the fixed rates that apply to your bonds.

Savers rushed to buy I Bonds in October because they wanted to lock in that 9.62% annualized rate before the new, lower inflation rate hit in November. I Bonds earn interest monthly. Interest is compounded semiannually.

It's not a bad new rate at all, especially when you consider that just a year ago people were excited about I Bonds when they paid an annualized rate of 7.12% for the six-month period for new I Bonds bought from Nov. 1 through April 30, 2022.

More: Inflation drives savings bondsI Bond frenzy could add up to more than $6B in October

I Bonds offer a way for everyday savers to park some money in a relatively low-risk spot for one year or more. If inflation goes down in the months ahead, the rate could adjust lower. But it also could go higher, if inflation heats up. You do not have access to money in I Bonds for the first 12 months after you buy the bonds.

High inflation and a higher interest rate environment pushed up rates on the less popular U.S. savings bond, the Series EE bond, too.

The Series EE Savings Bond, also bought online via TreasuryDirect.gov, moved up to 2.10% for savings bonds issued from November through April 2023. That is a fixed rate but for EE bonds you buy now, the Treasury guarantees that the bond will double in value in 20 years, if you hold onto it that long. The Series EE savings bond had been paying a mere 0.10% for those bonds issued from May through October this year.

Savers have seen rates nudge up only slightly as inflation climbed in the past year. But there are more options to get higher rates for those who shop around.

The average for a one-year certificate of deposit is 1.06% now, according to Bankrate.com. That's up significantly from 0.14% a year ago. Some promotional rates on one-year or 13-month CDs have been around 3.5% to 4%.

The highest rate for online savings accounts now is at 3.50% for an annual percentage yield, according to Ken Tumin, founder of DepositAccounts, which is part of LendingTree and tracks and compares bank rates.

Three online banks are offering this without any activity requirements — DollarSavingsDirect, Salem Five Direct, and Upgrade. DollarSavingsDirect, for example, lists no requirement to change your checking account and notes the Dollar Savings Account will be linked to your existing, current checking account.

FitnessBank has a savings account at 3.5% but — and this is no joke — you need to have your average daily step count hit 12,500. Right now, FitnessBank is promoting online that you get a $100 bonus for opening a savings account.

"You have to have their mobile app to record your daily activity," Tumin said. "12,500 steps per day on average qualifies for the top tier rate. Fewer steps on average qualify for lower rates."

Even so, many savers are receiving far less than 3% if they're ignoring their money and letting it sit in a regular bank account or even a regular CD.

Savers now buy I Bonds online at TreasuryDirect.gov and hold their bond money in online accounts. I Bonds can be bought online in any denomination from $25 to $10,000. The limit is $10,000 per person each calendar year or $20,000 per married couple.

You also can buy up to a total of $5,000 of paper I Bonds using your federal income tax refund. Paper I Bonds are issued in denominations of $50, $100, $200, $500, and $1,000. When you file your tax return, you would include IRS Form 8888 to use tax refund money toward I Bonds.

I Bonds turned into one hot commodity in October. Savers put more money in I Bonds in October than they did for all of 2021, when about $5 billion in I Bonds were sold.

The U.S. Department of Treasury reported that nearly $6.95 billion was invested by savers via TreasuryDirect in October, the bulk of that in I Bonds. The dollars invested are approximate and subject to revision as adjustments will be made for mistakes in transactions and purchases that exceeded the limit allowed in one calendar year.

TreasuryDirect sales on the final day to lock up that high I Bond rate, Oct. 28, ended up at $979 million. Yep, nearly $1 billion in one day. The Treasury said it has sold more than $35 billion in electronic savings bonds since Nov, 1, 2021.

Contact Susan Tompor: stompor@freepress.com. Follow her on Twitter @tompor. To subscribe, please go to freep.com/specialoffer.

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This article originally appeared on Detroit Free Press: New I Bonds rate for November 2022 not bad: What they're paying now