With inflation being the number one buzzword on the street, many people are looking for places where they can invest cash right now. Over the last several months, stock market indexes are down, bond prices are down, and there are signs that real estate markets are peaking due to rising interest rates. Even many inflation-protected bond funds are not doing all that well, and cash in the bank is losing value due to inflation. However, many personal finance gurus have suggested individuals try to find returns right now by investigating something called “I-bonds.”
Series I savings bonds, also known as I bonds, are bonds issued directly by the US Government to individuals. You may have even received savings bonds as gifts in the past. Savings bonds have a series linked to them which tells you under which rules they earn interest and the like. Most of your old bonds were “Series EE” bonds. Those paid a relatively low, fixed interest rate. If you still have them, you can learn more about their current value at your local bank or at treasurydirect.gov.
Series I bonds have an interest-paying pattern linked to inflation levels and it resets every six months. As of May, this interest rate is 9.62%, according to the US Treasury. However, there are specific rules for Series I bonds. First, they can only be bought directly through the US Treasury at treasurydirect.gov (clever, I know) and are held electronically (unless you buy them with your tax refund). Second, each person may only purchase $10,000 each year. Third, all Series I bonds must be held for at least one year but may be held for up to 30 years.
Also, cashing in your series I bonds may lead to some penalties if you sell them within five years of purchase, and, like series EE bonds, they can only be sold back to the Treasury. The early redemption penalty is the previous three months of interest. Taxes from earned interest may be paid every year, but they also may be deferred until maturity at the option of the owner. Either way, check with your tax professional on what the right option for you might be.
One of the reasons I bonds are so discussed right now is that they are currently paying a high-interest rate with the backing of the US Treasury, while most other asset classes have been declining in dollar value. If you want to read more about I bonds, visit treasurydirect.gov. There you can learn more about I-bonds and other savings bonds and see if they are right for your situation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Russell D. Rivera, CFA, CFP® is the Founder and President of Voice Wealth Management (Voice) in New York, NY. He also likes to think of himself as a Personal CFO and Financial “Therapist” for entrepreneurs, young professionals, and their families. He helps clients make prudent financial decisions regarding spending, saving, investing, and planning while giving a voice to the individual client's financial priorities and experiences.