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Save Safely and Steadily Earn 

Adding U.S. savings bonds known as I bonds (now paying 7.12%) can be smart for your retirement mix.

Many people approaching or in retirement are concerned about today's low interest rates and high inflation and that savings and investments may not keep up with rising costs.

If this sounds like you, perhaps consider adding a type of U.S. savings bond known as "I bonds" to your retirement mix because they are now paying a safe, high return far better than you can receive elsewhere.

An I bond is a savings bond just like the kind your grandparents may have given you on your birthday growing up, with a unique twist. Instead of providing only a fixed rate of interest the way traditional EE savings bonds do, an I bond also has a built-in inflation component that is added every six months. That's very valuable in today's economic environment with inflation running around 5.4% or so.

If you buy an I bond between November 2021 and April 2022, you will receive a 7.12% rate for the first six months. That means if you put $1000 into I bonds now, you will have about $1072 six months later, and you will receive a new interest rate after that, tied to the inflation rate at the time.

While I bonds are paying 7.12%, today's average 12-month bank certificate of deposit rate is just 0.14% and money market savings rates average 0.08%.

What Are the Details About I Bonds?

• An I bond keeps earning interest for 30 years.
• You must hold an I bond for 12 months or more.
• You can buy I bonds online through the government’s website TreasuryDirect.gov or you can buy paper I bonds using your federal income tax refund.
• Electronic I bonds come in any amount for $25 or more; paper I bonds are sold in five denominations: $50, $100, $200, $500 and $1,000.
• If you cash out within the first five years, you lose the prior three months’ interest.
• Every six-month anniversary of your purchase, the I bond’s inflation rate is adjusted up or down.
• Your I bond can never lose face value.
• You can only buy $10,000 in electronic I bonds per person per year and up to $5,000 in paper I bonds per person per year.
• If you own electronic I bonds, you can redeem with the TreasuryDirect application; if you own paper I bonds, you can cash them at a local financial institution or by mail.

• You cannot hold I bonds in an Individual Retirement Account (IRA).
• There should not be any fees from an investment advisor for buying and holding I Bonds.

What About The Early Withdrawal Penalty?

Some people are concerned about paying a penalty and losing the prior three months' interest if they cash out of I bonds sometime after 12 months. But since you will earn today's high interest in the first six months, your "penalty" will not touch that, so your 12-month return will be at least 3.56% if you buy the bonds by April 2022.

Why You May Want to Put I Bonds in an Emergency Fund

Many people have an emergency fund; money they can access "just in case."

Why not put a portion of your emergency fund money into I bonds, perhaps slowly at first (because you cannot touch it until 12 months), so your rainy-day funds will earn more interest than alternatives like bank CDs and savings accounts?

If it turns out that CDs or savings accounts start paying a great rate of interest again — which is a bit vague at this time — you could easily cash out the I bonds and switch your money back to bank accounts.

Can I Bonds Replace Other Bonds in Your Portfolio?

Many people are concerned about other U.S. government and corporate bonds that now have low interest rates and could lose value after inflation and potential interest rate increases (when interest rates rise, bond prices typically fall). That's why you could consider swapping in I bonds to replace some bonds you currently own that do not offer inflation protection.

Since I bonds will never lose money, you will not see any price fluctuations while you hold them and you can cash out without any drop in principal.

How to Buy I Bonds

Here are the nine steps to purchase electronic I bonds:

1. Go to TreasuryDirect.gov.

2. Click “open an account,” choose TreasuryDirect, “apply now.”

3. Choose type of account; most likely a personal one.

4. Fill in your info, including the bank account.

5. Create password and reminders (you will receive a username).

6. Check your email, get your account number and go back to TreasuryDirect.gov to login.

7. After you receive a “one-time passcode” by email, enter it on the Treasury site’s “virtual keyboard.”

8. Once you are in the account, click “BuyDirect,” then Savings Bonds — I bonds.

9. Enter the dollar amount, date and frequency or the date for a one-time purchase, click submit.