Series I Bonds

I-Bond Update

You’ve probably heard people talking non-stop about the new investment hotness.  You can buy it online and sure, it’s going to change your financial life, right? No, it’s not Dogecoin, Pugcoin, Hippocoin, Loraxcoin or any such nonsense—it’s Series I Bonds and they’re currently paying a risk-free 5.27% annual interest rate.  But, is the juice worth the squeeze?

Series I Bond 101

Series I Bonds are U.S. government savings bonds that offer a composite rate to help investors combat inflation.  The composite rate consists of a fixed rate (1.3% for bonds bought between now and May 2024) and a semi-annual inflation rate.  Both adjust every six months.

I Bonds can be purchased and redeemed online at Treasury Direct and investors can purchase up to $10,000 per taxpayer ID number (more on this below).  These bonds will be electronic—no fun paper artifact to show off at the bar unfortunately. An additional $5,000 can be purchased with a tax refund (Why do you still get a tax refund?), and those bonds will be issued on paper.

The I Bond will pay its composite rate for 6 months from purchase, then reset to the prevailing composite rate for the next six months.  It will pay interest for up to 30 years.  But you’ll only receive the interest when you redeem it.  There’s no stream of income into your checking account every six months.

Even though High Yield Savings Accounts, CDs, and Money Market Accounts are paying similar rates right now, there are still reasons to consider Series I Bonds.

Series I Bond Pros

There are some great reasons to consider purchasing I Bonds, but plenty of drawbacks too.

Current composite interest rate.  The semi-annual rate is currently 2.635%, which is 22.5% higher than the previous six-month period.  Since I’m at 1 G and 0 knots, I’ll risk some math in public.  A $10K bond purchased now will earn at least $263.50 if redeemed a year later, even if the semi-annual inflation rate resets to 0% during the next update cycle.

If inflation continues to rise, or the composite rate holds pretty much steady for the next six-month period (May to November 2024), you’d likely earn over $527 on a $10,000 investment in just one year.  Not too shabby.

Risk.  Investors usually consider U.S. Savings Bonds to be risk-free. We all like to Chicken-Little about how “things are bad” these days, but even (most of) Congress seems to agree that defaulting on debt isn’t in our national interest.

Tax Preference.  The interest earned on I Bonds is not taxed at the state and local level.  Most of you have probably signature-managed state taxes by choosing TX, TN, FL, NH, AK, NV, WY, WA, or SD, but state taxation is a factor for many investors.  Uncle Sam does tax the interest, but that bill can be deferred until you redeem the bond.  If desired, you can pay tax annually, even though you haven’t received the amount to spend into your account.  This might make sense if you expect a higher income tax bracket at redemption, e.g., 30 years from now.

A tax-preferenced, risk-free, 5.27% investment… what’s not to love?  A good bit.

Series I Bond Cons

I Bonds are not all sunshine, lollipops, and bottomless Jack and Coke at the expense of a Snacko with bad inventory control methods.  Here’s the fine print.

Variable Interest Rate.  This chart shows the history of the fixed and semi-annual rates.  You can see that the fixed rate had been falling for over 20 years and gravity seemed to have it trapped near zero until 2022.  The semi-annual rate spiked at 9.62% in May 22, then headed down before rising again in November 2023.

Nominal versus Real Interest Rate.  The nominal rate is the rate before factoring in inflation.  The real rate is what you earn after inflation.  Inflation isn’t a unitary number; it truly depends on what you need purchasing power for in your own life.  If all you plan to buy with your bond interest is healthcare, college tuition, or a new car in 2023, then 5.27% may not help you much.  Series I Bonds are meant to protect against inflation, not make you rich in the face of it.  The real return could be zero or negative, although the fixed rate of 1.3% does suggest that bonds purchased now will have a real return of at least 1.3%.  Your history book will tell you in a few years.

That said, if you hold the bond for a couple decades, I’m comfortable predicting that interest rates will change over the duration and it’s possible that your bond will generally keep up with inflation and at least deliver the purchasing power of your original investment, e.g., $10K.

Purchase Limit.  Many families are sitting on a lot of cash, perhaps hoping to buy a home in the next few years.  Wouldn’t it be great to get 5.27% on all that cash?  Unfortunately, the $10K limit isn’t going to help with a down payment on most houses.  The $10K limit is per individual tax payer/entity.  Thus, a married couple can buy $10K each… per calendar year… plus $5K more per tax return with a tax refund.

Other options to run up the score would include using a Trust or Business entity to purchase additional lots of $10K (electronic only—no paper via tax return).

Series I Bonds can be purchased and gifted, too.  Thus, if you’re of a mind to gift up to $10K per child, you can do that as well.

If you have a Revocable Living Trust in a state where separate trusts are established for each spouse, then each spouse can effectively buy $20K of I Bonds.

If you happen to own LLCs, the LLC can also purchase I Bonds.

Holding Period.  Series I Bonds cannot be redeemed for 1 year, full stop.  If redeemed prior to 5 years, the investor forfeits the last three months of interest.  For a house purchase in two to five years, this isn’t such a bad proposition for a portion of the down payment money.  Additionally, if rates head back down, 3 months of interest at 0% is… wait for it… $0, so not a big penalty.

If you’re putting your Emergency Fund into I Bonds, you’ll need to schedule your emergency for at least 12 months later…

Account Management.  I’m a huge fan of simplifying financial activity.  One the one hand, I Bonds are not marketable.  You don’t have to worry about where and how to sell them or use a costly broker to do so.  On the other hand, you can only purchase them at

That website interface leaves a lot to be desired.  It’s clunky.  You can’t hold your I Bonds at a brokerage or bank, so you’re inviting another account/website/login credential to your life.  If you pass away, it’s one more knot for your executor to untie.

What About TIPS Instead?

While I Bonds are meant to blunt inflation, so are Treasury Inflation Protected Securities (TIPS).  As financial instruments, they’re quite different.  The rate on TIPS is determined at auction each time the government issues them.  TIPS are bought and sold on secondary markets and if you own them, it’s probably through a mutual fund or ETF.

To combat inflation, a TIPS receives both a stated interest rate and a boost to the face value based on actual inflation.  Buying TIPS does hedge inflation, but as interest rates and other economic factors change, a TIPS fund can lose value.  You’ll pay an expense ratio and potentially other sales and management fees to invest in a TIPS fund as well.  You can invest a lot more than $10K in TIPS, but you can lose principal too.

Cleared to Rejoin

Should you consider Series I Bonds?  If you have the cash, and would like the feeling of earning some return, and don’t mind curating another set of account credentials (or two+ for a couple, a Trust, and a Partnership…), and don’t mind giving up access to the cash for at least a year…  They’re probably a do-no-harm purchase.

If you had to make a (taxable?) sale of an asset to free up the cash to buy I Bonds, are bothered by the fact that inflation can easily gobble up the purchasing power of the investment, would prefer to invest in stocks, or don’t want the complexity of extra accounts… they may be a hassle for you.

When the froth about Series I-Bonds started in October 2021, I didn’t put them very high on the to-do list. I’ve both bought and sold Series I Bonds in the last 2 years and while I don’t think they’re a financial savior, but:  Some extra diversity? Check.  A sense of agency in the face of inflation? Check.  A clunky website that probably makes the rollout of look like Instagram? Okay, no need to be mean.

Fight’s On

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