I bonds after 2 years — my $10k is earning 4.2%, worth keeping
I bought $10,000 in Series I Savings Bonds in May 2024, right before the fixed rate dropped from 1.3% to 1.1%. Two years in, here's how it's actually performed.
Current composite rate: 4.2% (fixed 1.3% + inflation component 2.9%). The 3-month interest penalty for redeeming before 5 years means I'd lose about $105. If I hold to May 2027, I'm past the 5-year mark — no penalty, fully liquid.
Is 4.2% competitive? HYSA rates are at 4.0-4.5%. Ally pays 4.0%, Marcus 4.25%. After state tax savings (I bonds are state tax-free), the equivalent HYSA yield would need to be ~4.5% to match. At current rates, I bonds are slightly ahead for me.
My plan: hold through May 2027 to clear the 5-year mark, then re-evaluate. If HYSA rates stay above 4.5% into 2027, I'll redeem and move to liquid savings. If they drop, I bonds stay.
Bottom line: I bonds still make sense as a 3-5 year inflation hedge, but not as a short-term emergency fund. The 3-month penalty eats too much of the yield.