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Everything You Need to Know about I Bonds

Updated: Dec 14, 2021

This is my new favorite "safe" investment for cash and the best alternative I've found to get away from CDs or your boring ole savings account. It's called the Series I Savings Bond from the US Treasury. It's arguably the best place to park cash and know you'll be able to keep up with inflation. And since interest rates are so damn low the appeal to these bonds has now become extreme.

The interest rates for these bonds are updated every six months (May and November) and are adjusted based off of the CPI (Consumer Price Index - essentially a measure of inflation). The new annualized yield for the next 6 months on these bonds is now 7.12% - the highest I've seen since I've been aware of them. The May bonds were 3.64% and before that 1.68% - so the 7.12% currently offered is outstanding.

There are a few limitations to these bonds. They have to be held for at least a year - but if this a true savings account that shouldn't be a problem at all. After the first year you can redeem them but you'll lose three months of interest (no big deal). If you hold them beyond five years that penalty goes away. The other major limitation is you can only invest $10,000 per Social Security number per year.

One benefit is there is no state or local income tax on the bond interest and the federal income tax can be deferred until you cash the bond which allows for great tax-deferred compounding. If inflation keeps running higher these bonds will re-rate and keep up with inflation which is also another benefit.

I think it's a great place to park your emergency savings. Once you get past the first year hurdle it provides an excellent alternative to bank savings. Again, the appeal is amazing right now because of the high interest rate. It might not last forever but it provides an incredible opportunity right now. When CD's and treasuries are quoting under 2% for 5 or 10 years this is a no brainer.

You can buy the Series I Bonds by clicking here which will take you to the Treasury Direct website.


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