By John H. Robinson, May 5, 2022
Consumers who purchased U.S. Treasury-issued Series I savings bonds prior to the end of April 2022 locked in 7.12% over the first six months and incredible 9.6% for the following six months. This maths out to an 8.36% rate of return over the full 12 months. It is the highest rate ever paid on I-bonds since they were first introduced in 1998. But what if you didn’t get around to purchasing the before the April 30th cutoff – Are they still worth buying?… Heck yeah!
Consumers who purchase I-bonds from now through November will still lock in the 9.6% rate for six months!!! The minimum holding period for savings bonds is 12 months, so buyers are at the mercy of the urban consumer price index (CPI-U) for the final six months. Even in the highly unlikely event that monetary policy efforts to quash inflation are immediately successful, the worst-case scenario is 0% for the final 6 months for a government guaranteed total 12 month return of more than 4%. I would be willing be to bet that your current cash reserves are earning far less than that.
I am also willing wager that inflation will not be so easily subdued. Even if the CPI ticks down to a far more modest 3-4% over the next six months, that rate paired with the 9.6% for the first six months, makes the purchase proposition only nominally less enticing than the 7.12%/9.6% pairing opportunity you just missed. Oh, and, by the way, when you cash them in, the interest is exempt from state income tax.
It is further worth mentioning that if you have already have I-bonds in a TreasuryDirect account and/or you still have old paper I-bond certificates lying around (the Treasury stopped over-the-counter sales of paper bonds on 12/31/20210), those bonds will also earn both the 7.12% and the 9.6% rates. Cha-ching!
For information on how to purchase savings bonds, see the articles below:
How to Buy Series I Savings Bonds (TheBalance.com)
Inflation bonds are earning eye-popping rates: 9.62% (NY Times)
Now is a good time to buy this inflation-indexed savings bond (Washington Post)
John H. Robinson is the owner/founder of Financial Planning Hawaii , Fee-Only Planning Hawaii, and Paraplanning Hawaii. He is also a co-founder of fintech software-maker Nest Egg Guru.
