I-Bonds can be a great safe option to consider. It is a fixed income instrument with no default risk, no principal risk, and no inflation risk.
While they have been written about extensively by financial columnists for the last year or so for paying rates above 7% annually, the truth is that I-Bonds pay the same real interest rate today (0% after adjusting for inflation) as they did a in 2010.
The difference today is that inflation is eroding the real value of money in bank accounts, CDs, and other fixed income instruments at a higher rate than a few years ago. Getting 1% interest on a CD while inflation is 2% is disappointing, but getting 1% interest on a CD while inflation is 8.5% is defeating. An I-Bond will guarantee you match the rate of inflation (as measured by the CPI-U).
If I could push a button and buy I-Bonds for all of my clients with ease, I would strongly consider doing so. However, it is not that simple.
Stocks for the long run are still a good bet, but for safe money the I-Bonds can make a lot of sense. Depending on one’s net worth it may not move the needle a whole lot to invest $10k in I-Bonds, but it’s always good to evaluate what options are out there and if they make sense for yourself.
Like every other financial account one may have, it is important to structure the beneficiary designations properly on I-Bonds.
It would not be surprising if the variable rate component of I-Bonds was significantly lower a year from now, but that would mean inflation is now lower and you are still maintaining your purchasing power. It’s all relative.
If you’re considering purchasing I-Bonds, you may want to wait until May as the new variable rate is projected to be higher for bonds issued starting in May.
Disclosure: This article is for informational purposes only and should not be considered a recommendation. Information contained in this article is obtained from third party resources that Meredith Wealth Planning deems to be reliable.
A quick chat to get to know each other and learn more about what you're looking for in an advisor
We know that working with an advisor is a big decision, take some time & sleep on it
When you're ready, we get started with our planning process