Thinking of Buying I Bonds? Here's Why You May Want to Move Quickly

Some people are more comfortable with the idea of buying and holding stocks in their brokerage accounts. But if you're looking for a safer way to invest your money, then you may want to consider buying I bonds.

I bonds are government-backed securities, and this alone makes them a fairly safe investment as far as your principal is concerned. With stocks, the value of your shares could drop days after you buy them. What makes I bonds a good buy right now is that their interest rate is tied to inflation. And because inflation has been surging, I bonds have been paying generously.

But if you're looking to purchase I bonds, you may want to do so before the end of April. Once May rolls around, the interest rate on I bonds has the potential to drop in a very big way.

Lock in that higher interest rate while you can

I bonds are paying 6.89% interest through the end of April, so if you purchase your bonds in the next two weeks, that's the rate you'll be able to lock in. Keep in mind that that's only your initial interest rate. Interest on I bonds resets every six months based on inflation, so you'll only be snagging that 6.89% rate for a limited period of time.

But once May 1 rolls around, there's a good chance I bonds will start paying a lot less interest. The reason? As mentioned, I bonds are pegged to inflation, but inflation has been cooling steadily since peaking in mid-2022. In March, annual inflation was measured at 5%, as per that month's Consumer Price Index.

This doesn't automatically mean that I bonds will start paying 5% interest come May. In fact, we're not sure exactly what interest rate they'll pay once April wraps up. But if you want to lock in 6.89% on your I bonds for the next six months, buy them before April comes to an end.

Are I bonds a good investment for you?

I bonds come with certain restrictions. You must hold them for at least a year after purchasing them and you'll be penalized for selling them before having held them for five years. Also, you're limited to buying $10,000 worth of I bonds per calendar year. If you bought $3,000 worth of I bonds in January, you can't purchase more than $7,000 worth this month.

That said, if you're married, that $10,000 limit applies to you and spouse individually. So collectively, you can purchase $20,000 worth of I bonds.

Although your principal is very secure when you purchase I bonds, there's always the risk that another investment might pay you more than what you're getting in I bond interest. Plus, having to tie up your money for at least a full year may not sit well with you. But if you're looking for a fairly stable investment with a decent return, then I bonds could be a great addition to your portfolio -- especially if, at this point, you're mostly invested in riskier assets like stocks and exchange traded funds (ETFs).