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Series I Bonds: A Way to Beat Inflation Thumbnail

Series I Bonds: A Way to Beat Inflation

With inflation on the rise and volatility in the stock market, many investors are looking for ways to protect their hard-earned savings. Unfortunately, there haven’t been many places to hide in this market. Typical bonds have had a hard time keeping up with inflation, and most money market savings accounts are yielding in the 0-1% range.

 For investors looking for an investment with a high current interest rate, inflation protection, and the safety of government backing, then Series I Bonds could be an attractive option. The interest rate on I Bonds increases as inflation rises, keeping pace with rising prices and protecting purchasing power over time.

The interest rates for I Bonds are set by the Treasury Department and include an inflation-adjusted variable return, which changes every six months based on the Consumer Price Index (CPI). The current rate on I Bonds is 9.62%, which is difficult to beat in this environment. However, note that the rate could reset lower if inflation starts to decelerate even if it remains elevated from the tame levels in recent years. There is also a limit on the amount of I Bonds you can purchase, and there are some liquidity constraints.

Investors can buy up to $10,000 in I Bonds electronically through the Treasury Direct website (https://www.treasurydirect.gov/). You can purchase an additional $5,000 in paper bonds with a tax refund.   

I Bonds can be cashed in after one year, but if done before a five-year holding period, you’ll forfeit the last three months of interest. However, the higher interest rate and potentially shorter holding period may still outweigh other savings vehicles like high-yield savings accounts and CDs.

Although these bonds are purchased directly through the treasury, we still recommend getting in touch with us to discuss your current cash flow needs, review your financial plan, and discuss your overall portfolio.

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Past performance is not indicative of future results and diversification does not ensure a profit or protect against loss. All investments carry some level of risk, including loss of principal. Fixed income yield and stock dividends do not correlate and are not derived from the same method or have the same guarantees or investment purpose. While both are income sources, stocks generally carry greater risk, are purchased also for the potential of appreciation in value and dividends can be variable and are not guaranteed. Consider the contents as a single factor in making an investment decision. Additional fundamental and other analyses would be required to make an investment decision about any individual security identified in this report.