With a 7.12% Return, Series I Savings Bonds Are A Way to Beat High Inflation

Recently, investors have been flocking to Series I Savings Bonds for protection against inflation. With inflation rates at a 40-year high, investing in these bonds now could make sense. The U.S. Treasury Series I bonds, which are backed by the full faith and credit of the U.S. government, receive a new rate every six (6) months. Right now, new Series I bonds sold from November 2021 through April 2022 earn interest at an annualized rate of 7.12%. Read on to find out more about how these bonds work and how to invest in them.

How Does the Interest Work?

The bonds earn interest for 30 years, or until you decide to redeem them (whichever comes first). If you redeem them before five years, you lose interest for the previous three months. After five years, you can cash in the bonds without a penalty.

Interest gets paid to the investors each month on the first day of the month in the issue date. You cannot redeem these bonds before one year as the minimum holding period is 365 days.

Why Purchase Series I Savings Bonds? 

Series I bonds provide a hedge against inflation - instead of having excess cash sitting in your checking account (returning nearly nothing), a strong return of 7% + seems like a good alternative.

One thing to note is that there is an investment limit per taxpayer of $10,000 worth of Series I bonds per year. However, you can purchase up to an additional $5,000 per person in paper bonds using federal income-tax refunds.

The interest earned on Series I bonds is subject to federal income tax, but not subject to state or local income tax. Additionally, the bonds are subject to any federal estate, gift, and excise taxes (as well as any state estate or inheritance taxes).

The Wall Street Journal published an article on February 21, 2021, "The inflation Mess and a Financial Refuge," emphasizing that the current administration could raise the annual cap for I Savings Bonds from $10,000 to $100,000. We will monitor the situation and keep you apprised.

How Can I Purchase Series I Savings Bonds?

You can buy Series I bonds directly through the treasury using the Treasury Direct website. You cannot purchase these bonds through Fidelity, and Innovative Financial, LLC cannot manage these monies.

Does it Make Sense to Purchase Series I Savings Bonds?

Investing $10,000 (if you have the cash on hand) into Series I Savings bonds is a good hedge against the high inflation rates seen today. As long as you do not plan to touch the monies for at least one year, we recommend locking further into this and purchasing Series I bonds through the Treasury website linked above.