For those looking for a better return than online savings accounts and money market funds, I-Bonds appear to be a viable option. They are savings bonds issued by the U.S. Treasury. You don’t pay state or local income tax on the interest, and you can defer federal income tax until you redeem the bond.
There are several reasons you might consider them. For one, the return is 7.12 percent for six (6) months as of November 2022 [Increased to 9.6 percent in May 2022]. And, likely to remain relatively high (compared to online savings accounts) given 2022 inflation projections. After reading an article on I-Bonds published by AARP, written by financial planner Allan Roth, I researched them in more depth.
My goal is to determine if they are appropriate for us. They are and we purchased the maximum amount for a married couple; $20,000 in December 2021 and $20,000 this month (January 2022).
How much you can purchase and where you purchase them is explained in the articles provided below. You may not be familiar with I-Bonds, like us a few months ago, given they are sold only by the US Treasury. No brokers or commissions. No reason for financial professionals looking to make a buck to market them. Introduced in September 1998, the “I” stands for “Inflation”.
First, it is important to determine if they make sense for you. For us, it is either get next to zero (0) interest in our online savings account and/or money market account for the next year or so, or make a few thousand dollars in a little over a year with I-Bonds.
But, this post isn’t about us. The purpose of this brief post is to share I-Bond resources for those interested in learning more about them.
Treasury Direct: you purchase I-Bonds electronically through the US Treasury’s Treasury Direct website but I wouldn’t recommend starting there. First, read a few of these articles to learn more before making a decision. And, relax. You can’t lose your principal investment:
- Article: Whip Inflation Now With I Bonds, Earn 7.12 percent through April and protect against high future inflation by Allan Roth, AARP, December 8, 2021. Allan Roth is a practicing financial planner who has taught finance and behavioral finance at three universities and has written for national publications including The Wall Street Journal. He gets to the point quickly in the article where he provides an overview of I-Bonds and their benefits.
- Article: Earn 7.12% With Series I Bonds, A savings or money market deposit account is best for quick cash, but I-bonds can fit into a longer-term savings plan, by: Lisa Gerstner, Sandra Block, November 29, 2021. This article is brief, but provides useful information from a reputable source.
- Article (PDF): Buy I-Bonds and Worry Less about Inflation, September 23, 2021. Four inflation mavens – Zvi Bodie, Mel Lindauer, David Enna and Michael Ashton – urge inflation-sensitive investors to embrace the government’s I-Bonds. They sent the “I-Bond Manifesto” to the Consumer Financial Protection Bureau. This is a comprehensive resource to learn more about the bonds; highly recommended read.
- Blog Post: 5 Things To Know About Series I Savings Bonds, Clark.com, November 5th, 2021. I always enjoy reading Clark Howard’s content. He provides practical advice for those looking to improve his or her financial future.
- Forum Thread: The I-Bond Manifesto, at Bogleheads.org, Investing Advice Inspired by Jack Bogle. This forum thread takes a deep dive into the Manifesto. It includes community comments/opinions and comments from the authors of the Manifesto.
Note an online savings account or money market account is a good choice for money you may need to access immediately (i.e., emergency fund). But I-bonds can fit well into your savings strategy. Especially well for those like us using the “bucket” approach to retirement planning and/or a goals-based approach to retirement spending. These strategies specifically earmark investments for short (1-5 years) and longer term use based on your specific spending needs, market returns, etc.
Additional details concerning the “bucket” approach to retirement planning is provided in:
- The Bucket Investor’s Guide to Setting Asset Allocation for Retirement, by Christine Benz of MorningStar, Inc., Jan 25, 2021
I hope this helps you with your retirement planning and investing for your future. Enjoy!
I hope everyone took advantage of the 9.6% interest rate which was available to those that purchased I-bonds by the end of Oct. 2022. Great no-risk and above-average return for sure.
If not, as of Nov. 2022 investors get 6.89% rate which is the composite rate. The 6.89% composite rate for I bonds bought from November 2022 through April 2023 applies for the first six months after the issue date. The composite rate combines a 0.40’% fixed rate of return with the 6.48% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). This is still a very good no-risk return.