• Series I bonds will pay 3.98% through October, the U.S. Department of the Treasury announced Wednesday.
• Tied to inflation, the latest I bond rate is up from the 3.11% offered through April, but down from the 4.28% yield paid through October 2024.
• Current I bond owners will see rates adjust based on their purchase date.

The U.S. Department of the Treasury on Wednesday announced new Series I bond rates. 

Tied to inflation, newly purchased I bonds will pay a 3.98% annual interest from May 1 through October 31, which is up from the 3.11% yield offered since November 1, 2024. This rate is lower than the 4.28% yield paid through October 2024. 

The new rate includes a variable portion of 2.86% and a fixed portion of 1.10%. The fixed rate is down from 1.20% announced in October.  

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After hitting a record high of 9.62% in May 2022, the I bond yield is down significantly. But the fixed-rate portion of the yield could still appeal to long-term investors, experts say.

How I bond rates work

I bond rates have a variable and fixed rate portion, which the Treasury adjusts every May and November. Together, these are known as the I bond "composite rate" or "earnings rate," which determines the interest paid to bondholders for a six-month period. 

You can see the history of both parts of the I bond rate here.

The variable rate is based on inflation and stays the same for six months after your purchase date, regardless of the Treasury's next announcement. 

Meanwhile, the fixed rate doesn't change after purchase. It's less predictable and the Treasury doesn't disclose how it calculates the update. 

How I bond rate changes affect current owners

If you currently own I bonds, there's a six-month timeline for rate changes, which shifts depending on your original purchase date. 

After the first six months, the variable yield changes to the next announced rate. For example, if you buy I bonds in September of any given year, your rates update every year on March 1 and Sept. 1, according to the Treasury. The Treasury adjusts I bond rates every May and November, reflecting the latest inflation data. 

For example, if you bought I bonds in March, your variable rate would start at 1.90% and change to the new rate of 2.86% in September. But your fixed rate would remain at 1.20%. That would bring your new composite rate to 4.06%.