At a time when there’s a lot of instability in the stock market, people are looking for a safe haven. And nothing says shelter and stability for your money better than savings bonds.
But is now the right time to buy savings bonds? Money expert Clark Howard has one kind in particular he’d like you to look at right now…
Here’s What You Need to Know About Savings Bonds Right Now
Savings bonds from the federal government come in two flavors: Series EE and Series I bonds. You can buy both types of bonds at SavingsBonds.gov.
What Are Series EE Bonds?
Series EE bonds are a plain vanilla saving instrument issued by the U.S. Treasury. They have terms of 30 years and pay a nominal rate of interest (currently 0.10%) during that term — or until you cash them in.
What Are Series I Bonds?
Series I bonds — the “I” stands for inflation — are a slightly more complex savings vehicle. There are actually two interest rates you earn money from when you buy an I bond:
- A fixed rate that you know when you buy the I bond and that never changes for as long as you hold it
- A separate inflation rate that changes every six months
Like Series EE bonds, Series I bonds also have a 30-year maturity term.
Currently, the composite rate on Series I bonds — when you take into account both the fixed rate and the adjustable inflation rate — is 2.22%.
“What you can earn right now on a Series I savings bond is much better than what you can earn on a CD,” Clark says.
We’ve got a full write-up on this unique savings vehicle right here.
Why Are People Gravitating Toward Series I Bonds Right Now?
It’s understandable that right now people would be flocking to Series I bonds. That base rate on top of the rate of inflation is really attractive to many.
And it could well prove to be a smart move for the long haul. That’s because there’s an emerging consensus that efforts by the Treasury Department and the Federal Reserve to prop up the economy will create some unintentional circumstances.
“There are a small number — but a significant enough number — of economists who believe that the amount of money that the federal government is printing to deal with the stimulus laws will lead to a wave of inflation,” Clark says. “If they are right, being in Series I savings bonds will turn out to be a very smart decision.”
If those economists are wrong and we don’t have any meaningful inflation going forward, you can simply sell your I bonds after you’ve held them for a year.
In that case, you would just forfeit the prior three months of interest. Then you could reinvest the money should a better opportunity present itself.
All in all, Clark says he thinks I bonds are “a reasonable strategy to use right now if you do worry that inflation is in the future picture.”
The consumer champ notes that he owns some Series I bonds that he bought in the 1990s, and he intends to keep them for the full 30 years until they mature.