The Macro View

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It’s been a long time since Savings Bonds issued by the US Treasury, of any flavor, have been appealing.  However, a silver lining to the increased inflation we are currently experiencing is that savers can now take advantage of attractive Federal Series I Savings Bonds to earn more on idle cash sitting in deposit accounts.       

Purchases of I Bonds are limited to $10,000 per calendar year, per person.  To take the most advantage of this opportunity you may want to act before the end of 2021. 

Why Series I Savings Bonds

  • The current composite rate for Series I bonds is 7.12%.   This is the highest rate on I Bonds since May 2000 and far exceeds the interest currently paid on cash deposit accounts and likely core bonds in a diversified investment portfolio.   

The interest on I bonds is a combination of a fixed rate and an inflation rate.  Once purchased, the fixed rate does not change for the entire 30-year life of the bond.  The current fixed rate on bonds is 0%.  The inflation rate however can and does usually change every 6 months.  The current 6-month inflation rate is 3.56%.  FYI: The composite rate of 7.12% is calculated by annualizing the 6-month rate (3.56% x 2). 

  • Interest from Series I Bonds is not subject to state income taxes.  Not only is the interest generated more than what is being generated in cash savings accounts less of those earnings are taxed (assuming you live in a state that taxes income).    

Purchasing Series I Bonds 

  • I bonds must be purchased directly from the Treasury Direct website.  
  • The current inflation rate is good until May 2022.  
  • Purchases are limited to $10,000 each calendar year, per person.    

To maximize your purchase amount consider purchasing $10,000 prior to January 1 and then another $10,000 after January 1, in the new year.  

The $10,000 limit is per account.  You can open an account for your spouse, your children, your business and potentially trusts.  So, a married couple could do $20,000 in 2021 and $20,000 in 2022.   

Redeeming an I Bond 

  • I bonds earn interest for 30 years unless you cash them in prior to that 
  • You can cash them in any-time after 12 months but if you cash them before 5 years, you lose the previous 3 months of interest.   

Who Should Consider? 

If you have money parked in cash deposit accounts and do not have a need for the money in the next 12 months then you should consider taking advantage of the current I bond rates.    

Reach out if you have questions about I bonds, want to quantify the benefit to you or need assistance with opening an account.  

Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities.  Full disclaimer.

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