Looking for a way to keep your money safe yet make sure that it outpaces inflation? Series I bonds may be the perfect solution for you.
Here’s what you need to know about Series I bonds
Back in the 1990s, money expert Clark Howard first started talking about Series I savings bonds and how they were a tremendous deal for savers because of the fantastic rates of interest.
By the early 2000s, the federal government decided people were getting too good of a deal buying them. So they basically made them worthless for people to purchase moving forward.
But fast forward to today: With economies slowing around the world, the threat of us going into a recession rising and interest rates going down, all of a sudden I bonds are potentially a good place for you to stash cash again.
Here’s what you need to know before getting started…
1. How do Series I savings bonds pay you?
The “I” in Series I bonds stands for “inflation.” But that’s just half the picture. 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
“We are in a position right now because of the distortions to our economy from the tariffs,” Clark says, “that at the same time as the economy is slowing, inflation in a lot of sectors is rising simultaneously.”
I bonds are way to profit from that rising inflation. Right now, the fixed rate for an I bond sold from May 1, 2019 through October 31, 2019 is .50%. This rate will remain constant over the life of the I bond.
With the additional interest rate that changes every six months, you’re currently earning a combined 1.90% on your money.
While Clark acknowledges that’s not huge interest, what he likes about it is that you never have to worry about falling behind inflation. You always get your base rate, plus the secondary rate, to put you over the top.
2. How much in I bonds can you buy?
You can buy $10,000 of these each year, per person. The minimum investment starts at $25 when you do it online.
You can also buy paper savings bonds using your tax refund. In that case, the minimum starts at $50.
3. How long can you hold an I bond?
I bonds reach full maturity after 30 years. That means you stop earning interest on your money after 30 years.
An early withdrawal penalty applies anytime you want to cash out an I bond before five years of ownership. The penalty is forfeiture of three months of interest.
4. Where can you buy I bonds online?
To buy Series I savings bonds online, simply go to TreasuryDirect.gov and click on “I bonds.”
At this time, Clark likes I bonds because of the current economic conditions, but that advice could change as frequently as every six months.
No matter how you slice it, Series I savings bonds are just one possible tool to help you achieve long-term financial stability. But don’t confuse buying one with investing, Clark says.
“Putting money in an I bond is not investing. It’s a method of saving and it gives you a way of knowing that inflation isn’t eating your money up. Because you’re kicking past inflation.”