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

    Victor Lei — Head of Research

    Victor Lei — Head of Research

    June 2, 2021

    Series I Savings Bond

    June 2, 2021

    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).

     

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