I Bond rate rises to 4.30% effective May 1

The Treasury Department set the composite annualized rate on I bonds at 4.30%, effective May 1. The new rate applies to I bonds issued between May 1 and Oct. 31 and to existing bonds when each bond reaches its next six-month adjustment date.

The composite rate combines a fixed component established when the bond is issued and a variable inflation component that resets every six months. The fixed portion remains constant for the life of that bond. The variable component is tied to changes in the Consumer Price Index for All Urban Consumers (CPI-U) and was updated for the May 1 adjustment.

The Treasury updates I bond rates twice a year, on May 1 and Nov. 1, based on recent inflation data. Bonds purchased on or after May 1 will earn the 4.30% composite rate for the first six months after purchase. Existing I bond holders receive the updated inflation component on each bond’s six-month anniversary; for example, a bond purchased in February will take the May-set inflation component when it resets in August.

Interest on I bonds compounds monthly and is added to the bond’s value. Interest is paid only when the bond is cashed or reaches final maturity. I bonds cannot be redeemed for the first 12 months after purchase. If a bond is cashed before five years, the owner forfeits the last three months of interest.

I bonds are sold directly by the U.S. Treasury at TreasuryDirect.gov in electronic form. Paper I bonds are available only when purchased with a federal income tax refund. Individual buyers may purchase up to $10,000 in electronic I bonds per calendar year and up to $5,000 in paper I bonds via the tax refund option.

Interest earned on I bonds is exempt from state and local income taxes. Federal tax on interest is deferred until redemption or final maturity unless the owner chooses to report interest annually. The May adjustment is one of two scheduled opportunities each year when the inflation component and the composite rate can change.