new Series I bond rate May 2025 explained: 3.98% vs fixed

A Series I savings bond has two moving parts. The fixed rate stays with the bond for its full 30-year life, while the inflation rate changes every six months, and Treasury combines the two into what it calls the composite rate, according to TreasuryDirect’s rate methodology and its Q&A PDF.

That means the 3.98% rate announced for May 2025 applies only to the first six months after issue. After that, the bond resets again, based on whatever inflation reading is in force at the time, TreasuryDirect said in its May 2025 release.

Treasury also said rates for savings bonds are set each May 1 and November 1. So the May reset is routine, even if the number itself looks friendlier than the 3.11% that preceded it.

The inflation piece got the push from CPI-U. Treasury said the index rose from 315.301 in September 2024 to 319.799 in March 2025, a six-month gain of 1.43%, which it translated into a 2.86% annualized inflation component for the new composite rate in its May 2025 release.

That was a step up from the prior reset. Treasury’s November 2024 announcement said the earlier composite rate of 3.11% included a 1.20% fixed rate and a 1.90% annualized inflation rate, based on a smaller six-month CPI-U change of 0.95%.

The fixed rate moved the other way. Treasury set it at 1.10% for the May 2025 window, down from 1.20% in the previous period and 1.30% in May 2024, according to TreasuryDirect’s May 2025 and May 2024 releases. TreasuryDirect says it announces the fixed rate each May 1 and November 1, but it does not publish a formula for how that number is chosen.

So the headline increase came from inflation, not from Treasury offering a better long-term deal. That is the part easy to miss if all that catches the eye is 3.98%.

The new rate is better than the one before it, but it is not some dramatic comeback. Over the last two years, the composite rate has stayed in a fairly narrow band: 4.30% in May 2023, 4.28% in May 2024, 3.11% in November 2024, and 3.98% in May 2025, according to TreasuryDirect’s May 2023, May 2024, November 2024, and May 2025 releases.

The fixed rate has drifted lower in that same stretch. Treasury said it was 0.90% in May 2023, 1.30% in May 2024, 1.20% in November 2024, and 1.10% in May 2025. That is the quieter story here, and for long-term buyers it is the one that matters.

Treasury’s rates page already shows the next reset, for bonds issued November 2025 through April 2026, at 4.03% with a 0.90% fixed rate. If that holds, the composite rate nudges up again while the permanent floor slips a little farther.

The 3.98% rate is most useful for savers who want inflation protection and are willing to leave money alone for a while. It also has a simple appeal for people who do not want to gamble on where inflation goes next, because the bond is designed to move with price pressure rather than outrun it.

The bond is less compelling for anyone chasing pure yield. Treasury says the fixed rate stays in place for 30 years, and at 1.10% it is not especially generous. For someone comparing a May 2025 purchase with the 1.30% fixed rate available in May 2024, that difference is not trivial.

The timeline matters too. Treasury says bonds bought through TreasuryDirect are capped at $10,000 per person each year, with a separate $5,000 available through paper bonds bought with a tax refund, for a combined limit of $15,000 per person per calendar year, according to its Q&A PDF.

There is also the lockup. Buyers cannot access the money for the first 12 months, and cashing out before five years costs the last three months of interest, TreasuryDirect said in its May 2025 release and Q&A PDF. That makes I bonds a poor fit for emergency cash, no matter how tidy the rate looks on paper.

I bonds do have one old-fashioned virtue: they are boring in a useful way. Treasury says earnings are exempt from state and local income taxes, and federal taxes can be deferred until redemption, final maturity, or another taxable disposition, according to its Q&A PDF.

That can give I bonds an edge over CDs or high-yield savings accounts for people in high-tax states, especially if the money will sit for several years. The exact benefit depends on the buyer’s tax bracket, so this is not a universal win, just a decent one in the right hands.

They also have built-in downside protection. Treasury says a Series I bond’s redemption value will not decline during deflation, even if the composite rate falls to zero, and the bond can earn interest for up to 30 years, according to the Q&A PDF.

For inflation-conscious savers who want a government-backed place to park money for at least a year, the May 2025 rate is respectable. It is also a reminder that I bonds are not built to thrill. They are built to keep pace.

For anyone whose main goal is maximizing long-term return, the softer fixed rate is the bigger clue. The 3.98% composite rate may look stronger than the one before it, but the permanent piece of the bond is lower, and that is the part that keeps compounding long after the inflation number has moved on.

The cleanest way to read this reset is simple: the Treasury I bond rate increase reflects hotter inflation over the last six months, not a richer long-term offer from Treasury. That distinction is the whole game.