Insights

Series I Bonds and Their Role in a Portfolio

May, 2022

This month, the U.S. Treasury will announce new Series I Savings Bonds will earn a healthy 9.6% annualized rate. This very attractive yield has generated a good number of questions about the use of Series I Savings Bonds. To answer them, we first need to understand what these securities are and how they work. Series I Savings Bonds are issued by the U.S. Treasury and earn interest for 30 years that is federally taxable but exempt from any state or local taxes. The interest rate earned on Series I Savings Bonds, or I-Bonds, is compounded semi-annually and is currently quite attractive at the aforementioned 9.6%. The interest rate is a combination of fixed rate (currently 0%), which does not change during the life of the bond, and an inflation rate (currently 9.6%), which adjusts semi-annually based on the Consumer Price Index for all Urban Consumers, or CPI-U. This rate resets in May and November each year.

While these securities sound like excellent investments, it is important to note that I-Bonds are limited in the following ways:

  • You must own them for one year before you can cash them in.
  • If you sell them before a five-year holding period, you forfeit three months of interest.
  • Investors can only purchase $10,000 worth of I-Bonds electronically from the Treasury in any given calendar year. An additional $5,000 of bonds can be purchased in paper form, but only through the proceeds of your federal income tax refund check.
  • I-Bonds are ineligible for Roth IRA accounts.

While there is no denying the appeal of these securities, the purchase restrictions make their use potentially limiting. As always, if you have any questions, please feel free to reach out to us to discuss your specific circumstances to determine if I-Bonds are a good fit in your portfolio.

 

This information is for educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Investing involves risk including loss of principal. Information from sources deemed to be reliable but its accuracy and completeness cannot be guaranteed. By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements, or representations whatsoever by us regarding third-party websites. We are not responsible for the content, availability, or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.

Collective Wealth Advisors About the author: Trey Nelson, AIF®, Managing Partner and Wealth Advisor, CWA. Trey has spent the past 23 years in the wealth management business, both as an advisor guiding individuals and families, and as a coach and consultant to successful independent wealth managers. Over the last decade Trey has worked with one of the largest and most respected RIAs (Registered Investment Advisors) in the country, frequently speaking at national investment conferences on investment strategies and wealth management topics. Serving in his role as a Vice President gave him the unique opportunity to work alongside two Nobel-prize winners, one of the world’s leading behavioral finance experts, respected industry thought leaders and many of the top independent wealth managers in the nation. Drawing upon this experience will be an important asset to our collective team and, most importantly, to the clients for whom we serve.