I Bond or CD: What’s Smarter Right Now?

You can buy I bonds through April 27 and score an interest rate of 6.89%, but would you be better off with a CD?

A man and a woman sit on a couch looking at a tablet

FreshSplash / Getty Images

We independently evaluate all recommended products and services. If you click on links we provide, we may receive compensation. Learn more.

If you have cash you can sock away for a year or more, you have some options this week for maximizing what you earn on that money. As usual, the best play on where to park your funds depends partly on arithmetic and partly on your personal financial situation. Unfortunately, it also depends on doing your best to predict the future.

That’s because two of today’s top-paying options for the money you can live without for a year or longer are certificates of deposit (CDs), which pay fixed rates that are currently at record highs of over 5.00%, and U.S. Series I bonds, which have a variable rate indexed to inflation, currently set at 6.89%—that is, if you buy before April 27 is over.

Deciding between them involves making a guess about where I bond rates will go in the future, and whether that’s a better or worse bet than what you can lock in with a CD right now.

Key Takeaways

  • You have until 11:59 p.m. Eastern Time on April 27, to buy I bonds at the current interest rate of 6.89%.
  • I bond rates are pegged to inflation, with their interest rate changing every six months. The next I bond rate announcement, scheduled for Monday, May 1, will almost certainly lower the rate to below 4.00%.
  • CD rates are at record levels not seen since at least 2009, with dozens of options paying an annual percentage yield (APY) of at least 5.00% and reaching as high as 5.35%.
  • The interest rate on a CD is fixed for the duration of its term, meaning you'll know exactly how much the CD will pay once you lock in your rate and make your deposit.
  • Deciding which is best depends in part on how long you're willing to hold the money in savings.

Comparing I Bond and CD Rates

Current CD returns are at their highest levels since the Federal Deposit Insurance Corporation (FDIC) started tracking deposit rates in 2009. Every day, Investopedia tracks the best-paying offers available across the country, with our rankings helping you earn top dollar in any major CD term from 3 months to 10 years.

As of April 25, the highest rate on a CD of any length is 5.35% APY, offered on a term of 22 months. In addition, multiple options are paying a fixed 5.25% APY for 6 months to almost 2 years, or up to 5.00% APY on terms stretching to 3 years.

I bonds, on the other hand, have a rate that’s only set for six months at a time, with the U.S. Treasury announcing new semiannual rates every May 1 and Nov. 1. The reason they’re called I bonds is because their rate is determined by a formula based on the latest inflation data.

Right now, you can still buy I bonds with an April issue date. You need to buy no later than 11:59 p.m. Eastern on April 27, because April 30 falls on a weekend and it takes one business day from the time you buy the I Bond on TreasuryDirect.gov until it is issued. But if you make your purchase in time, you’ll earn 6.89% for the first six months you own the bond. (I bonds always provide you with six months of each interest rate, regardless of when in the calendar cycle you purchase the bonds.)

On Monday, May 1, however, a new I bond rate will be announced, and we know it will be significantly lower based on the Treasury's rate calculation formula and the March inflation data—Consumer Price Index (CPI)— that was released on April 12. Crunching the relevant numbers, the lowest possible I bond rate that could be announced Monday is 3.38%, but more probably, it will be 3.78%. While it’s possible it could go a little higher, to 3.98%, for example, it’s very unlikely to surpass 4.00%.

That means an I bond purchased between Nov. 1, 2022, and April 27, 2023, will pay 6.89% for its first half year and then likely 3.78% for its next six months, for a simplified average rate of 5.34% during the first year you own the bond.

That would seem to put it on par with the industry-leading CD rate of 5.35%, but that comparison is only apples-to-apples for a one-year investment. For different durations, the decision gets more complicated.

Today's Top Nationally Available Savings Rates
Savings Option Today's Top Rate
I Bonds 6.89% for 6 months if purchased by April 27, then 3.38%-3.98% (est.) for months 7-12
3-Month CDs 5.00% APY
6-Month CDs 5.25% APY
1-Year CDs 5.25% APY
18-Month CDs 5.25% APY
2-Year CDs 5.35% APY
3-Year CDs 5.00% APY
4-Year CDs 4.73% APY
5-Year CDs 4.68% APY
High-Yield Savings Account 5.02% APY right now, subject to change at any time
Source: Treasury Direct and Investopedia daily rate data

Your Timeframe Determines Your Best Investment

If committing your funds for a single year suits your financial goals, then you’ll probably do slightly better with an I bond (if you buy by April 27), as only the very best CD currently available will pay better than the I bond’s simplified average rate of 5.34% rate. Most of the top-paying certificates are offering 5.00% to 5.25% APY.

But buyer beware, since locking into an I bond carries one notable risk over a CD: You can't cash in an I bond until 12 months after its issue date. In contrast, you can get out of a CD if needed, though you’ll be hit with an early withdrawal penalty. But, in exchange, you can access your funds.


Like CDs, I bonds also have an early withdrawal penalty. And it’s reasonably mild, calculated as only the last three months of interest if you redeem it within the first five years after it was issued. But until the I bond hits its 12-month birthday, no withdrawals whatsoever are permitted.

Obviously, this means that if you’re looking to invest for shorter than a year, ignore I bonds entirely and instead shop for a top-paying short-term CD or a high-yield savings account.

But if you want to hold your cash in savings for two, three, or even five years, this is where predicting the future comes in. While you’ll know exactly what a longer-term CD will pay for its full term, what an I bond will pay (and whether that beats today’s best CD rates) will depend on what inflation does over the coming months and years.

Right now, it’s expected that inflation will continue dropping, as it has over recent months due to the Federal Reserve’s aggressive monetary policy. If that trajectory continues, we know that future I bond rates will also keep falling, making them a less lucrative option than if you had locked in an attractive long-term CD rate.

But of course, financial and economic crystal balls are a thing of fiction, and it’s impossible to know if inflation rates in the U.S. will return to the desired 2.00% range. As we learned from the pandemic, these things are far from predictable. And that's where I bonds shine: If inflation rises, owners of an I bond will have some protection because their rate will also increase.

I Bonds vs. CDs: Best Moves for Different Timelines
Best Options If Saving for Less Than 1 Year Best Options If Saving for About 1 Year Best Options If Saving for 2 to 5 years
Short-term CD (3, 6, or 9 months) 1-year CD with a relatively mild early withdrawal penalty If you think inflation will fall: CD locked at today's record rates for your desired duration
High-yield savings account I bonds purchased by April 27 If you think inflation will rise: I bond purchased by April 27

Other Considerations for Investing in CDs or I Bonds

I bonds do have a few additional advantages, largely having to do with tax treatment. With CDs, all of the earnings are fully taxable as interest income, at both the federal and state levels. But I bond interest is only federally taxed, so you’ll avoid state taxes.

In addition, I bond holders can choose when to report their interest earnings. It can be year by year on your tax return, or you can defer all of the interest until the year you cash in the bond, which can be up to 30 years from the issue date.

Lastly, if you cash in I bonds to pay for qualified educational expenses, you can also avoid federal tax on the earnings, making it a fully tax-exempt investment.

But CDs have a different key advantage. Besides removing the guesswork and being an entirely predictable investment, CDs allow you to deposit much larger sums than I bonds allow. Certificates of deposit can be opened with extremely large deposits, such as $250,000 or even more. But I bonds are capped at a much smaller $10,000 per taxpayer per year (or up to $15,000 if you choose to also buy a $5,000 paper I bond with your tax refund).

Rate Collection Methodology Disclosure

Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account's minimum initial deposit must not exceed $25,000.

Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Federal Deposit Insurance Corporation. "National Rates and Rate Caps."

  2. TreasuryDirect. "I Bonds."

  3. U.S. Bureau of Labor Statistics. "Consumer Price Index Summary."

  4. TreasuryDirect. "Tax Information for EE and I Bonds."

  5. Federal Reserve. "Open Market Operations."

  6. Internal Revenue Service. "Publication 550 (2022), Investment Income and Expenses."