I Bonds

Protect & Grow Your Money with Series I Savings Bonds

One of the ripple effects of the pandemic is that interest rates are currently lower than inflation, meaning traditional savings accounts won’t help you protect and grow your hard-earned money. Instead, the purchasing power of your savings actually goes down over time. With interest rates so low, savings products such as nominal Treasuries, certificates of deposit, and money market accounts effectively earn negative interest over time. 

Protecting your financial security as a busy physician is crucial and challenging. Series I savings bonds (I-bonds) are a low-risk product that can help you protect your savings from inflation and earn a more attractive rate than you would through traditional savings accounts.

What are I-bonds? 

The U.S. Treasury introduced I-bonds in 1998 as a safe way for Americans to get a meaningful return on their savings directly from the government. Today, you can purchase electronic I-bonds with a TreasuryDirect account or paper I-bonds with your IRS tax refund. I-bonds are typically used to finance education or supplement retirement income, but they are increasingly being utilized as an inflation hedge.

The current annual interest rate for I-bonds is 3.54%, and if inflation continues to rise, the I-bond rate will go up accordingly. This built-in protection against inflation rates means the purchasing power of your savings is guaranteed to stay the same and may potentially even increase over time.

While I-bonds are not a new savings product, many people either don’t know that I-bonds exist or don’t act upon this knowledge. In fact, I-bonds only represent about 0.2% of the current total amount of U.S. government bonds. Learn more about I-bonds to decide if this excellent, lesser-known long-term savings solution is right for you.

How do I-bonds work?

You can purchase I-bonds at face value for a minimum of $25 and an annual maximum of $10,000 per person. For example, you could pay $100 for a $100 I-bond, and if you have four people in your household, you could purchase up to $40,000 total in I-bonds per year. You can also purchase multiple I-bonds in varying amounts up to the annual maximum purchase threshold if you want to cash your bonds at different times or for different reasons.

The minimum term of ownership for an I-bond is one year, but the interest-earning period lasts up to 30 years or until you cash them, whichever comes first. If you cash your I-bond before five years, you forfeit three months’ worth of interest as an early withdrawal penalty.

Any interest earned on your I-bonds is tax-deferred until the interest-earning period ends. If you cash and use your I-bond to pay for qualifying higher education expenses in the same calendar year, the interest is also exempt from federal taxes.

Since you purchase I-bonds directly from the government and not through a financial institution or advisor, there are no fees or commissions. I-bonds are a great alternative to bank accounts, mutual funds, and other bonds and savings solutions. If you want to support your long-term financial and personal goals, we would love to discuss the role I-bonds have in your portfolio.

Want to learn more? Get in touch with the experts at Oakwell Private Wealth Management. Your Oakwell advisors can provide complete financial planning and other fresh ideas like the I-bonds to help you establish an individualized, complex financial plan that will protect and grow your wealth.

The information contained in this article represents the opinion of Oakwell Private Wealth Management and should not be construed as personalized or individualized investment advice.