Client Question: Series I Savings Bonds

September 1, 2022

It wasn’t all that long ago that inflation was a seemingly theoretical discussion topic.  We’d bring it up to clients (usually during a financial planning future illustration) and try to find a way to explain it.  “Your money will be worth less over time” or “your purchasing power will decline” were phrases we’d use. While the concept could be understood to some degree, most of us had never lived in a time of extreme inflation – at least not in the past 10-20 years.

Fast forward to late 2020 and the months that have followed and it’s likely that every American adult has not only heard endless chatter on this topic but they have experienced it first hand.

With the resurgence of inflation, there has been an equal resurgence in the popularity of Series I Savings bonds – a bond sold by the US government that is adjusted for inflation, commonly known as I Bonds.

History Lesson

Savings bonds were first introduced by the United States government in 1935 during the Great Depression to provide a savings vehicle for Americans, while also raising money for the federal government.  Modifications and enhancements have been made to these securities over the years and today, two types of savings bonds remain – Series I and Series EE.

Series I bonds have variable rates of interest that are connected to current inflation data.  Series EE bonds are tied to long-term treasury interest rates

How do Series I Bonds work?

Again, they are savings bonds issued by the US government.  They have a term of 30 years and have a rate of interest that resets every six months.  The yield is reset to keep pace with inflation as measured by the Consumer Price Index.

Why are they so talked about?

The current interest rate for I bonds is 9.62% – that is a very high interest rate for a savings bond and as such, they have been getting a lot of attention. In fact, this is the highest rate since the inception of the I Bond in 1998. 

Current I Bond Yields

The yield on I bonds is comprised of two parts – a fixed component and a variable component. For I bonds purchased today, the fixed rate is 0%.  The entire yield (again, presently 9.62%) is variable. That variable component is reset twice a year (first business day of March and November) based on changes in a specific inflation metric (namely the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy).

Wait, so the yield will change over time?

Yes. Again, the variable component (which represents the entire yield for I bonds issued today) resets each six months. While the path of inflation is unknown, it is likely (not guaranteed – but likely) to decline from here over time. But again, no one knows that for sure – which is why these yields are reset each six months to help savers hedge out inflation risk over time.

How much can I buy?

Purchases are limited to $10,000 per account per year.  (Note: you can buy up to another $5,000 per year in paper I bonds with your federal tax refund using IRS Form 888). Accounts are associated with US individuals and in some cases, a business.

How do I buy them?

These bonds can only be purchased online directly with the government at so it requires a separate custodial account and tracking. It has been reported that some individuals encounter issues on the website (as your identity has to be verified to ensure its one account per person), potentially, resulting in a paperwork and a 2 week approval process – but it’s not insurmountable

Are there any tax implications?

I bonds cannot be held in tax-sheltered accounts so their interest is taxable at a federal level (however it is exempt from state and local income tax). The interest compounds semiannually (ie: gets added to your principal) so you only owe taxes at redemption or maturity.

What is their term?

I bonds have a thirty year term. You must hold I bonds for a minimum of one year except in case of a verifiable hardship.  And if you redeem within five years, you forfeit three months of interest.

What happens if I pass away?

You can assign a beneficiary to your savings bonds, which would allow them to transfer ownership upon your death. However, since it is another account at another institution, it is important to consider it carefully in your estate planning and ensure there is a suitable paper trail for your estate

Are these right for me?

If you have been reading my articles for a while now, you already know the answer. That’s right – it depends! Reach out to your financial advisor and see if these is an opportunity for you to invest in these securities within your portfolio

Note: All commentary above is as of the date of this post and is for education and informational purposes only. Windermere and its principals do not intend for this to serve as investment advice and are not responsible for any actions taken based on this article. Consult your financial advisor before taking any actions as it relates to your own investment portfolio

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