November 28, 2022. Much as I love I Bonds, the government's inflation-adjusted savings bonds, Treasury Inflation-Protected Securities (TIPS), may be a better option today. They are providing an even better yield over inflation than I Bonds.
If you're looking to diversify your portfolio amid the sluggish stock market right now, you might consider Series I bonds as a safe long-term investment with a reliable return. For most people, long-term investing in low-cost index funds is the best path toward financial independence.
EE Bond and I Bond Differences
EE bonds offer a guaranteed return that doubles your investment if held for 20 years. There is no guaranteed return with I bonds. The annual maximum purchase amount for EE bonds is $10,000 per individual whereas you can purchase up to $15,000 in I bonds per year.
Series I savings bonds are government-backed securities that are connected to the inflation rate. Because the government backs it, it is considered a relatively safe, conservative investment with no chance of losing its principal value.
I Bond Cons
The initial rate is only guaranteed for the first six months of ownership. After that, the rate can fall, even to zero. One-year lockup. You can't get your money back at all the first year, so you shouldn't invest any funds you'll absolutely need anytime soon.
If you'll need that money in the next five years, a certificate of deposit is a wiser choice. For longer-term saving goals, Series I Bonds may be a better option. For example, if you're looking to pad college savings, I Bonds can offer tax benefits and shield your funds from inflation.
The main way is to go online using TreasuryDirect.gov, and the I bonds bought through this website are digital. There's also an entirely separate way to purchase paper I bonds.
Bonds are safer for a reason⎯ you can expect a lower return on your investment. Stocks, on the other hand, typically combine a certain amount of unpredictability in the short-term, with the potential for a better return on your investment.
While the wealthy used to invest in stocks, bonds, and real estate, this study suggests that, going forward, they may prefer investments like crypto, private companies, and other alternatives.
The current yield on I bonds is down from a peak of 9.62% during the previous six-month period, but I bond yields remain higher in 2022 than they have been since 2000. These I bonds are protected against inflation and backed by the U.S. government, making them essentially risk-free investments.
The guaranteed rate of return for an I bond is currently 6.89%. That means if you buy an I bond today, you'll lock in that variable rate for the next six months. When inflation eventually starts falling from this year's highs, I bond interest rates will go down, too.
If your paper savings bond is lost, stolen, destroyed, mutilated, or you never received it, you can ask for replacement.
I bonds have never been popular due to low interest and low inflation rates. However, inflation has increased, making these safe bonds more attractive. The cap at $10,000 and the annual interest of $689 might not be worth the hassle of owning and keeping up with a separate account.