We’ve been in a low rate environment for a while. It’s tough to earn a real (after inflation) return on your bonds right now. One option that investors may consider is buying I Bonds from the US government – currently they’re paying 7.12%.

For I bonds, interest payments are derived from a “fixed” interest rate plus an “inflation-adjusted” component. Since inflation has been running high for the past year, the I Bonds current interest rate is now 7.12%. The rate is reset every six months (depends on the current inflation level). Here is the skinny on I Bonds:

  1. Each person can buy up to 10k per year of I Bonds (You cannot buy them in a retirement account)
  2. You have to hold them for a minimum of 1 year
  3. If you sell them before 5 years, you forfeit 3 months of interest. If you sell them after 5 years, there is no penalty.
  4. The bonds mature in 30 years (but you can sell them anytime after 1 year).
  5. Interest is exempt from state taxes but taxable for federal income taxes.

Talk to your advisor if you have questions about I Bonds and how they might fit into your portfolio.

You can buy them directly on the Treasury Direct website: https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm

A full write up on the I Bonds can be found here: https://www.kitces.com/blog/federal-series-i-savings-bonds-inflation-712-composite-rate-treasurydirect-compare-fixed-income-investments/#disqus_thread

Disclosure: This is not a recommendation to buy I Bonds. Each investor is unique and investors should speak to their advisor about the advisability of any investment. Investments are subject to risk of loss and value fluctuations.

Posted in Investments, Retirement

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