May 26, 2022

This is the time of year when most people have ice cream on their minds, in their freezers & (eventually) in their belly.  However this year, I’ve been asked more about I-Bonds than Ice-cream.   That’s because by the time you read this, it’s likely that the U.S. Treasury will have to announce new Series I Savings Bonds will earn a healthy 9.6% annualized rate. This very attractive yield has generated a good number of questions about the use of Series I Savings Bonds.

What are these securities and how do they work?

Series I Savings Bonds are issued by the U.S. Treasury and earn interest for 30 years that is federally taxable but exempt from any state or local taxes. The interest rate earned on Series I Savings Bonds, or I-Bonds, is compounded semi-annually and is currently quite attractive at the aforementioned 9.6%. The interest rate is a combination of fixed rate (currently 0%), which does not change during the life of the bond, and an inflation rate (currently 9.6%), which adjusts semi-annually based on the Consumer Price Index for all Urban Consumers, or CPI-U. This rate resets in May and November each year.

While these securities sound like excellent investments, it is important to note that I-Bonds have some limitations:

• You must own them for one year before you can cash them in.

• If you sell them before a five-year holding period, you forfeit three months of interest.

• Investors can only purchase $10,000 worth of I-Bonds electronically from the Treasury in any given calendar year. An additional $5,000 of bonds can be purchased in paper form, but only through the proceeds of your federal income tax refund check.

• I-Bonds are ineligible for Roth IRA accounts.

Conclusion: While there is no denying the appeal of these securities, the purchase restrictions make their use impractical for the vast majority of clients. If you have questions about how these, or any investments may fit with your plan-don’t hesitate to reach out!