Luis Pazos 
When the markets are rocky and prices are climbing, investors start to worry about their cash. Interest rates are slowly rising, but savings accounts are still offering just about 0.5%. So, where can someone invest their money to get a good return without taking on a lot of risks? One option might surprise you: the U.S. government. Here’s why.
Through TreasuryDirect.gov, you can buy I bonds, which are currently giving a 7.12% return with low risk. And this rate is going up to 9.62% on July 1st. Not bad, especially compared to the meager returns from high-yield savings accounts and CDs these days.
I bonds, where the "I" stands for "inflation-linked," are government savings bonds that pay more as inflation goes up. They’re pretty simple to buy, and you could have one before you finish reading this. By the time you’re done, you’ll know if I bonds suit you, how to buy them, and what restrictions to watch out for.
Should You Buy I Bonds for Your Portfolio?
Ask yourself these two questions to decide if I bonds are a good fit:
- Do you have extra cash beyond your emergency fund?
- Will you need that extra cash in the next year, two years, or five years?
If you’re saving for a big expense like a house, a wedding, college for your kids, or even your own retirement, then I bonds can help protect your extra cash from inflation right now. They might also be a good alternative to traditional banking in 2022.
How Safe Are Series I Bonds?
I bonds are U.S. government savings bonds meant to keep your money safe during inflation. Think of them as a loan you give to the government, which pays you interest that adjusts with inflation. They’re low-risk and give a solid return.
What About Default Risk?
Some might worry about credit risk, but the U.S. government won’t default on these bonds. That safety typically comes with a trade-off: lower returns in times of low inflation. Until recently, I bonds haven’t drawn much interest, but now with yields at 9.62%, they’re hard to ignore.
Non-Marketable Securities
I bonds have a 30-year term and can only be bought directly from the U.S. Treasury. You won’t find them on secondary markets, brokerage accounts, or investment apps like Fidelity or Robinhood. Sure, setting up an account might take five minutes, but it’s worth it for a 9.62% return!
How to Buy a Series I Bond (Step by Step)
- Visit TreasuryDirect.gov and open an account.
- Follow the three-step process: choose your account type (most pick "Individual Account"), enter personal and banking information, and secure your account with a password and security questions.
Once your account is set up, you can buy your bonds. The minimum purchase is $25, and the maximum is $10,000. If you want to invest more than $10,000, there are legal ways to increase your limit, which we’ll discuss later.
4 Restrictions on Purchasing I Bonds
- Non-Marketable: You have to open a TreasuryDirect account and can only buy/sell through the U.S. Treasury.
- Purchase Limits: You’re limited to $10,000 per person or entity annually. However, you can buy an extra $5,000 with your tax refund or buy $10,000 for each family member.
- Minimum Holding Period: You must hold I bonds for at least a year, and if you cash out before five years, you’ll lose the last three months’ interest.
- Active Management: I bonds aren’t a set-and-forget investment. You need to stay informed about inflation rates and how they affect your I bonds’ returns.
When Do Series I Bonds Rates Reset?
I bonds rates adjust every May and November based on the current inflation rate. If inflation goes up or down, the I bonds’ rate will follow. This makes them a smart place to park your extra cash for a year or longer, though you must keep an eye on inflation trends.
What About Negative Inflation?
The formula used to calculate I bond rates accounts for periods of negative inflation, but your rate will never drop below 0%.
Bottom Line – Series I Bonds To Protect Your Money
Think of I bonds as a defensive strategy. They won’t make you rich, but they’ll help preserve your purchasing power during inflation. They’re a good place for extra cash you don’t need immediately, especially if you’re looking at a holding period of one year or more.
