Series I savings bond — America’s best-kept investment secret

Series I savings bond: According to Zvi Bodie, a retirement consultant(via WSJ), “I Bonds are the best-kept secret in America”. Why? Financial advisors aren’t incentivized to promote them.

What is a series I savings bond? I bonds are inflation-protected US savings bonds — investments backed by the US government, which makes them nearly risk-free. They pay a fixed interest rate that changes every month (current rate is 3.54%).

• Only US residents or citizens have access to these.
• A maximum of $10,000 per year can be invested.
• They’re exempt from state and local income tax.

ELI5: I bonds protect against inflation. If inflation rises, the interest rate on the bond will rise accordingly.

The downside: They’re less liquid than other investments i.e. You can’t cash out until you’ve held for at least 12 month:

• Cashing out before 5 years will incur a penalty of 3 months interest.
• According to WSJ, if you cashed out at the current rate of 3.54% after a year, your return will drop to 2.65%.

For those with a lower risk tolerance or wanting to avoid putting all their capital into the stock market, I bonds offer a lower risk but higher return alternative to savings accounts.

A series I savings bond is bought directly from the US government (via TreasuryDirect).