Series I Savings Bonds Look Surprisingly Attractive As Inflation Surges

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Series I Savings Bonds from the U.S. Government may see a jump in return given the current … [+] inflationary environment (AP Photo/Richard Drew)


Often investing is complicated and risky. Sometimes, there are simpler options. In the current inflationary climate, this may be true for the Series I Savings Bonds of the U.S. Government. In the current environment, you may receive an interest payment of 3% to 5.5%. Government backing reduces most of the risk. The catch is purchases are limited to $10,000 per person per year.

These saving bonds pay interest at the CPI-U rate. This is important as inflation has been unusually high at around 5% in recent months. These bonds currently pay a high interest rate, especially if you take into account the risk. These bonds are guaranteed by the U.S. government, and the price is fixed. This means that there is less downside risk than stocks.


That said, there are some limitations. First, there is a redemption penalty of three months’ interest if the account is held for less than five years. Even with this in mind, investors who take advantage of the current inflation surge might still be able to outperform other fixed income investments. However, these investments may be more risky.

HTML2_ You have to trade them through the TreasuryDirect platform. This is likely more complicated than your brokerage account. It doesn’t mean you have to deal directly with brokers or receive commissions.

Thirdly, you’re limited to a $10,000 purchase per person with a social security number per year and up to $5,000 from cash tax refunds. The minimum purchase is $25.

Current Payments

These bonds are currently paying 3. 54% for May-October 2021 issuance, but that’s only reflecting lagged inflation from September 2020 to March 2021, which was pretty subdued compared to current inflation rates.

In November the interest rate should update to reflect the inflation rate from March to September 2021. This is potentially even more intriguing. Now, of course we don’t know what that will work out to yet, but it could very easily be in the 3.5% to 5.5% range based on the rates of inflation we’ve seen in recent months and what September’s data holds (September’s CPI numbers should be reported on October 13th).

Risk Adjustments

What makes these savings bonds potentially interesting is that they are relatively low risk. While certain stocks and riskier bonds might offer higher returns, they also have the potential to lose money. Most people would agree that U.S. stock prices are not cheap.

These bonds have more predictable outcomes. These bonds offer a decent return and are not risky. If these bonds can pay you 3% now and maybe 5% in future, when the 10 year Treasury yields around 1.2% for comparison, then these savings bonds may be worth investigating.

You will need to go through TreasuryDirect to obtain them. There is also a 3-month penalty for early withdrawal if you don’t sell them within five years. If inflation proves transitory these may be an interesting short-term investment, but then payments may decline with inflation, but should inflation linger then these savings bonds may offer an even more attractive return and probably without too much potential risk

Simon Moore, Senior Contributor Read More

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