We have been receiving questions regarding Series I Savings Bonds from clients so would like to share this communication to answer FAQs regarding the bonds.
What are Series I Savings Bonds?
Series I bonds are basically a way to profit from rising inflation. The “I” in Series I bonds stands for “inflation.” But that’s just half the picture. There are actually two interest rates you earn money from when you buy an I bond -- a fixed rate that never changes for as long as you hold the bond which is currently 0.0% and a separate inflation rate that changes every six months which is currently 3.56%.
The initial interest rate on new Series I savings bonds is 7.12% for 12 months. While you are guaranteed to earn 3.56% through April 2022, the U.S. Department of Treasury calculates the rate for 12 months (3.56% x 2) as an estimation of what you would earn over a year. The rate may change after six months. Right now, the fixed rate for an I bond sold from November 2021 through April 2022 is 0.0%. This rate will remain constant over the life of the I bond. Then there’s the separate inflation rate, which currently pays 3.56% every six months and changes at the end of that six-month period. When you add the two rates, you’re earning an annual composite rate of 7.12% (3.56% x 2).
You can buy up to $10,000 of these each year, per person. The minimum investment starts at $25 when you purchase online. I bonds reach full maturity after 30 years. That means you stop earning interest on your money at that point. The minimum ownership is one year. An early withdrawal penalty applies if you cash out an I bond before five years of ownership. The penalty is forfeiture of three months of interest.
Should I buy Series I Savings Bonds?
If you go to one of the big banks, they’ll pay you .01% on your savings on average. If you go to an online bank, they might pay you up to ½% on your savings. With Series I Savings Bonds, the federal government itself will pay you right now for the next six months, an interest rate of 7.12%. If inflation does start to trend down, what you earn will change at the six-month resets. But compared to interest rates you can earn elsewhere right now, putting money into this may be a good idea. Remember, you are locking in your money for a year so this should be an investment you do not immediately need to withdraw.
How does buying I Bonds Fit into my Financial Plan?
If you're a client we are always happy to review specifics with you. If you decide to purchase Series I bonds, we would recommend you let us know at the next planning meeting so we can ensure your financial plan stays up to date. We can also answer questions as to whether this may be an appropriate investment for you depending on your individual circumstances and future financial goals.
Where do I go to buy and learn more?
To buy Series I savings bonds online, simply go to TreasuryDirect.gov and look for the link that says “How to buy Series I” under the “Individuals” tab.
If you're reading this and not a client but would like to discuss this or any other financial matter, we would welcome the opportunity to help you.