U.S. Series I Savings Bonds Are Now the “It” Investment, Providing a 7% Return and the Backing of the U.S. Government

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U.S. Series I Savings Bonds have quickly become the “it” investment for those looking for a decent return coupled with the relative safety that comes from holding a U.S. government-backed bond.

The reason I Bonds have become so attractive is a double-edged sword of sorts.

You see, the “I” in I Bonds stands for Inflation. Meaning, the interest rate this particular bond pays is tied to the inflation that’s currently being seen in the U.S. economy.

Higher prices on a variety of goods and services Americans utilize equates to a higher yield for I Bonds.

Actually, the I Bond’s yield is a combination of a fixed rate (which is currently 0%) and a variable inflation rate which is calculated twice a year based on the Consumer Price Index for all Urban Consumers (CPI-U).

And since the U.S. economy has seen a significant increase in the inflation rate over the past six months, it’s the variable (CPI-U) rate that is making I Bonds so attractive.

The CPI-U calculation was released last week – October 13, 2021 – and it showed inflation rose 3.56% March to September 2021.

This increase means the inflation-adjusted rate of I Bonds will rise to 7.12%, annualized, for six months beginning November 1, 2021, and running through April 30, 2022.

This is up from its current rate of 3.54% which is available through October 31, 2021, and will be payable the first six months the bond is owned.

Couple the 7.12% variable rate with the I Bond’s 0% fixed rate and its new composite rate will be…yep, you guessed it…7.12%.

A really nice return on an investment that is as secure as they come.

Will this rate remain once recalculated for the period November 2021 – April 2022?

That’s the question. But, considering the current economic, political and health situations the U.S. and the world are facing, it’s likely inflation will stay high for at least that period. Which will lead to another six months of well-above-average returns. Although, nothing is guaranteed.

If you have money you want to put to work, the current I Bonds are a pretty enticing option right now.

Here are a few details associated with I Bonds and their purchase, as well as links where you can get more information.

U.S. Series I Savings Bonds

Here’s an important point for those who may need access to money they’ve invested.

I Bonds must be held for 12 months before they can be redeemed.

Redemptions after one year, but before five years, will lose the last three months of earned interest. This is an important point to keep in mind. However, even if you want to redeem your I Bond at the 13-month mark, your earned interest minus the last three months will likely be greater than what you could have earned in any other equally safe investment such as a savings account, money market, certificate of deposit, or bond/bond fund.

Once you’ve held an I Bond for five years, there is no penalty on redemptions.

And, I Bonds can be held, tax-deferred, for up to 30 years.

I Bond Purchases

I Bonds are purchased via the U.S. Department of Treasury Bureau of the Fiscal Service site TreasuryDirect.gov.

Minimum Purchase Amount: $25 for electronic purchases and $50 for paper purchases.

Maximum Purchase Amount: $10,000 total each calendar year per Social Security Number for electronic purchases and $5,000 total each calendar year per Social Security Number for paper purchases.

Available Bonds: Any amount, to the penny, from $25 to $10,000 for electronic purchases. Paper purchases are available in $50, $100, $200, $500 and $1,000 bonds.

You can get more information on I Bonds at Treasury Direct’s web page at the link below.

Treasury Direct I Bond Page

And, you can get a really good overview of I Bonds in the post “I Bond Manifesto: Why inflation-linked savings bonds can work as part of your emergency fund” on the site TIPS Watch.

TIPS Watch – and its owner, David Enna – also provide a number of really informative articles on investing in inflation-protected vehicles. Start at the linked post above and then spend some time checking out associated posts to get a good feel for I Bonds, the current economic/investing climate and other related topics.

Wrap Up

As a result of the Federal Reserve Bank holding interest rates low for over a decade now, investors have been all but forced to put money into stocks, rather than bonds which are a much safer investment vehicle, to earn a reasonable rate of return.

So far, that’s turned out well…very well for many investors.

But, hanging out there is the specter of downside risk that’s typically associated with stock investing. Especially now that the Federal Reserve is beginning to discuss the normalization of its bond purchases and actions associated with interest rates.

These actions could result in markets easing their upward momentum, or even losing value in the short to medium term.

Bonds are a hedge against potential stock losses. But the regular 2, 5, 10 and 30-year notes and bonds are still offering minimal returns.

In comes the I Bond, an inflation-adjusted investment that’s currently offering a very enticing return thanks to the increased inflation rates we’re currently seeing.

I bonds could be a good option for investing money over the coming year or so – maybe longer – as the economy transitions through what could be a tumultuous period of time thanks to Covid, government stimulus and potential Federal Reserve actions.

What do you think? Are I Bonds an option for your money?