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.

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