The Investment Scientist

I Bonds: A Slow and Safe Way to Beat Inflation

Posted on: April 27, 2022

When something seems too good to be true, it is often not true. But there is one exception in the financial world: I bonds. 

I bonds are federal government bonds sold to individual investors that pay a very high-interest rate that is linked to inflation. For instance, the current rate is 7.12%. On the first business day of May, the Treasury Department will announce a new rate that will be close to 10%. Some expected it to be 9.62%. Nowhere in the world can one get this high of an interest rate, guaranteed by none other than the US government.

So what is the catch?

Well, there is no catch, but there are some limitations.

  1. You can’t buy I bonds in your bank or brokerage account. You must go to Treasury Direct and open an account there.
  2. You can buy no more than $10k worth of I bonds per year ($20k for a family of two) and you must hold them for at least 12 months.
  3. You can’t hold I bonds in your IRA account or any other retirement accounts. However if you have a trust, it can hold I bonds. 
  4. You don’t have to pay state and local taxes on your interest, but you do have to pay federal taxes.
  5. You may gift I bonds to your children and/or parents, but keep in mind the $10k per person limit. 

I bonds surely won’t make you rich overnight, but when you purchase them every year, they will help you beat inflation in a safe and secure way!

Note that if you are not sure to buy it now or after May the 1st, you may want to schedule a review with me.

Schedule a 2nd opinion financial review, buy my wealth mgmt books on Amazon.

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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