Series I Savings Bonds: A Safe Investment With A High Return


I get a lot of questions about money. These questions tend to vary based on the asker and her needs, but there’s one question I get more often than any other: “What’s a safe investment with a high return?”

For the past decade or so, I’ve had no answer to this question. Savings accounts and certificates of deposit are safe, sure, but they’re no longer attractive investments. Since the Great Recession of 2008/2009, interest rates have remained shockingly low. This is by design. The government doesn’t want you parking your money in a savings account. They want that money out circulating in the economy.

Over the long term, the stock market offers excellent returns. But when people are asking for “safe” investments, they’re wanting avoid short-term volatility, which means stocks are out of the question. (And stuff like Bitcoin and precious metals are even more out of the question!)

Today, however, while catching up on my blog reading, I stumbled upon a link from Michael Kitces’ weekly roundup for financial planners. The story he shared blew my mind. Writing in The Wall Street Journal, Jason Zweig explains the safe, high-return trade hiding in plain sight. (This article is behind a paywall.) That safe, high-return trade? U.S. government Series I savings bonds.

These inflation-adjusted bonds are currently yielding 3.54% annually!

Zweig writes:

Economists say there’s no such thing as a free lunch, but I bonds offer a guarantee from the U.S. government that you can recover your original capital plus any increases in the official cost of living along the way. The only catch is that this isn’t an all-you-can-eat buffet: The maximum purchase is $10,000 per year per account holder (unless you elect to take your tax refund in the form of an I bond).

Ironically, the less you earn and have to invest, the more powerful a tool I bonds are.

Because I was unfamiliar with I Bonds, I spent a couple of hours reading about them today. I think I’m going to begin adding them to my investment portfolio. You might like to also. Let me share what I’ve learned.

The Basics of I Bonds

Series I savings bonds (or simply “I Bonds”) are inflation-indexed bonds with a variable interest rate. That variable rate comprises two components.

  • A fixed rate. On the first business day in May and the first business day in November, the U.S. Treasury adjusts this fixed rate for new bonds. But once you purchase a Series I bond, this fixed rate never changes. If the fixed portion of your I Bond is 2.10% when you purchase it, it’ll remain 2.10% for thirty years (or until you sell it).
  • A variable rate indexed to inflation. This rate also adjusts at the beginning of May and November. It’s based on changes to the Consumer Price Index. Currently, the “semiannual inflation rate” (as it’s officially known) is 1.77%,

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What do you think?

Written by Robert Gragg