A tip of my hat to the U.S. Treasury. Exactly the correct decision.

By David Enna, Tipswatch.com

The U.S. Treasury followed a decade-long tradition and set the fixed rate of the Series I Savings Bond at 1.40% for purchases from November 2026 through April 2027. That creates a highly attractive annualized composite rate of 5.51%.

The fixed rate of 1.40% — which is equivalent to the I Bond’s real yield above inflation — is the highest for the investment since November 2006. The composite rate, up from 4.26%, will make this I Bond highly competitive with other very safe investments, such as the 1-year T-bill currently yielding 4.42.%

An I Bond pays interest based on a semi-annual inflation rate (in this case 2.04% from April to September 2026) and a fixed rate (now 1.40%). Here is how the Treasury combines the two rates to get a composite rate of 5.51%:

The variable rate

The inflation-adjusted rate (often called the I Bond’s variable rate) is now 4.08%. That rate will apply to all I Bonds ever issued, with the starting date depending on the original month of purchase. The variable rate of 4.08% means that even I Bonds from past years with fixed rates of 0.0% will earn 4.08% for six months, a yield a bit above high-quality money market funds.

Here are the inflation numbers used to determine the variable rate:

The fixed rate

Here is the formula I have been using to forecast the Treasury’s fixed-rate decision: Apply a ratio of 0.65 to the average real yield of the 5-year TIPS over the last six months. This formula has worked, without fail, for 16 fixed-rate resets since November 2017. it is reassuring to see past practices continued.

The 0.65 ratio formula was discovered by Boglehead geniuses — and it worked — but a debate remained about when the six-month rate-setting period begins. In my forecasts, I have been using yields starting on May 1 and November 1, but some analysts argued the period should start and end 5 days earlier. Today’s result gave us a clear answer: the Treasury started the count on May 1. (Going 5 days early would have resulted in a fixed rate of 1.30%.) More on that here.

The fixed rate is crucial for I Bond investors because it creates the real yield over inflation. A fixed rate of 1.40% means an I Bond will out-perform future inflation by 1.40%. This is a solid fixed rate and means your investment can continue to surpass official U.S. inflation for as long as you hold the I Bond, up to 30 years.

The composite rate

The fixed rate of 1.40% and the inflation-adjusted variable rate combine to create six-month composite rate of 5.51%, which is very attractive. Keep in mind, however, that an I Bond has to be held for 1 year and then any redemption before 5 years will lose the last three months of interest. This new I Bond will keep the fixed rate of 1.40% forever, but get a new composite rate beginning six months after purchase.

In my opinion, I Bond investors should be looking to hold for 5 years and then cash out when they need the money.

The Treasury held its purchase cap at $10,000 per person per year. If you have already bought your 2026 allocation (as I have) you can get the 1.40% fixed rate and 5.51% composite rate for any purchase from January to April 2027.

EE Bonds

The Treasury set the fixed rate for Series EE Bonds at 2.90% for purchases from November 2026 to April 2027. That is up from the past rate of 2.40%. After 20 years, EE Bonds automatically double the original purchase amount, which creates an effective return of 3.53% if held for 20 years. Treasury says:

For EE bonds you buy now, we guarantee that the bond will double in value in 20 years, even if we have to add money at 20 years to make that happen.

A fixed rate of 2.90% is an improvement but isn’t highly attractive, and a 3.53% for a 20-year investment doesn’t compare well with the 20-year Treasury bond yielding 5.35%.

I Bonds are attractive

Yes, you can earn a real yield of about 2.31% on a 5-year Treasury Inflation-Protected Security, a bonus of about 91 basis points. That’s hard to ignore and the TIPS is a highly attractive alternative. If you use the 0.65 ratio as a “fair value” yield for the I Bond, you get a fixed rate of 1.50%. So the TIPS has an advantage, even at the discounted rate.

I Bonds, however, have other advantages: Tax-deferred interest, rock-solid deflation protection, a flexible maturity date and no market fluctuations. I Bonds are well suited for use as a secondary emergency fund, constantly outpacing inflation, to be held for 5 years and then redeemed when you need the cash.

Haven’t bought in 2026? You are a genius and now you can purchase this attractive I Bond in November or December and then potentially again in 2027. When you are placing an order at TreasuryDirect, remember to buy near the end of the month to earn a full month of interest. In November, the 25th looks like a good target date.

You could also consider redeeming any of your remaining 0.0% or 0.1% I Bonds to raise cash to purchase this higher rate. When you redeem, you should do that early in a month, because you will earn no interest for month you redeem. Also be aware that you will owe federal taxes on the interest earned.

Also, remember that even 0.0% I Bonds will be earning 4.08% for six months, a rate that I bet beats the current yield on your money-market account.

Already bought in 2026? Are you like me? I bought my full allocation in April, before the May reset. There are ways to get around the $10,000 limit, using purchases through the gift-box loophole, trusts, or business-owner strategies. The gift box only works for investors with a trusted partner.

I am souring on the gift box, so I will hold off until 2027 to buy into this new I Bond. In this case, it looks wise to hold off on purchases until mid-April, to get an idea of the upcoming variable and fixed rates heading toward us on May 1.

Final thought

I appreciate that the U.S. Treasury followed tradition and allowed I Bond investors to get an attractive real yield and composite rate. Well done.

• Confused by I Bonds? Read my Q&A on I Bonds

• Wise advice: ‘Don’t die with I Bonds’

• Let’s ‘try’ to clarify how an I Bond’s interest is calculated

• Inflation and I Bonds: Track the variable rate changes

• I Bonds: Here’s a simple way to track current value

• I Bond Manifesto: How this investment can work as an emergency fund

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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.