The U.S. Department of the Treasury on Tuesday announced Series I bonds will pay 6.89% annual interest through April 2023, down from the 9.62% yearly rate offered since May.

It’s the third-highest rate since I bonds were introduced in 1998, and investors may lock in this rate for six months by purchasing anytime before the end of April.

“The rate of 6.89% is another very competitive rate for the I bond compared to other conservative alternatives,” said Ken Tumin, founder and editor of DepositAccounts.com, which tracks I bonds, among other assets.

Backed by the U.S. government, I bonds don’t lose value and earn monthly interest with two parts: a fixed rate, which stays the same after purchase, and a variable rate, which changes every six months based on inflation.

While early estimates for the I bond rate were 6.48%, the new rate includes a 0.4% increase for the fixed portion of the rate, based on higher Treasury inflation-protected securities yields, Tumin said.

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TreasuryDirect announces new rates every May and November.

You can purchase the assets online through TreasuryDirect, limited to $10,000 per calendar year for individuals. You can also use your federal tax refund to buy an extra $5,000 in paper I bonds.

On Oct. 28, TreasuryDirect crashed as investors rushed to meet the deadline to lock in the 9.62% annual rate for six months. A department spokesperson said the traffic put “significant pressure and strain on the 20-year-old TreasuryDirect application.”

Despite technical issues, TreasuryDirect sold a record $979 million of I bonds on Oct. 28, nearly as much in a single day as were sold in three years from 2018 to 2020.

The downsides of I bonds
While the current I bond rate may be attractive, experts point to several downsides.

One of the trade-offs is you can’t touch the money for at least one year. There’s a three-month interest penalty if you cash in the I bond before five years.

Another drawback is lower future returns, explained certified financial planner Christopher Flis, founder of Resilient Asset Management in Memphis, Tennessee.