What are I-Bonds?

/ Planning Within Reach, LLC/

transcript

Hi. I am going to talk about I-Bonds. I have recommended them to clients, I have written about them on my website, but it's time to do a quick update because I'm receiving a lot of questions about them with the recent spike in inflation.

What are I-Bonds?

I-Bonds are the Series I Savings Bond. They are part of the U.S. Treasury savings bond program and they're considered low-risk investments. There are two (2) components to them:

There's the fixed component, which is a fixed rate that carries throughout the life of the bond and there's the inflation component, which is a variable rate - it is adjusted twice a year, every six months. At the moment, I-Bonds purchased through April 2022 have a fixed rate of 0%, but the inflation component is 7.12% annualized, and that's the highest it's been in over two decades.

So if you're looking for a savings vehicle that can protect your principal and maintain your purchasing power, you might consider I-Bonds. Just to give you an idea, Ally's money market rate at this moment is earning .5% and their high-yield, 5-year CD has an APY of 1%.

How liquid are I-Bonds?

I-Bonds will earn interest for 30 years, but you can access your money before that with some limitations. For the first year, first twelve months, you cannot sell the bond. So don't take money that you might need within a year and buy an I-Bond. For years 1-5, you can redeem the bond, but you'll lose the previous 3 months of interest if you do that. And then after five years, you can redeem the bond and get the current value. So if you bought an electronic I-Bond, you would log into TreasuryDirect and you will look at the "Current Holdings" tab and that would show the current value of the bond that you hold.

Possible drawbacks of I-Bonds

And just know that I-Bonds are not marketable - you can't buy and sell them on a secondary securities market. And there are limits on how much you can buy. So for the most part, you can buy $10,000 of an I-Bond per social security number per calendar year.

Despite those drawbacks, it still might be a good fit for you. So check out TreasuryDirect - here's a lot of information there. Reach out with questions.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning and ongoing impact-focused investment management in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.