Series I Bonds: A Ray of Hope


By Devesh Shah

There are not many winners this year, but simplicity has taken the cake.

Series I Savings Bonds is one such winner. The current interest rate accrued on these bonds is 9.62% – in line with the CPI.

Like TIPS:

  • Series I Bonds are backed by the full faith and credit of the US Government.

Unlike TIPS:

  • Series I Bonds carry no risk, nor benefit, from movement of real rates and duration. In essence, they don’t have price risk.
  • Series I Bonds also do not have risk to future deflationary CPI – not that anyone is thinking about deflation right now.

A known irritant about Series I Bonds:

  • US savers are allowed to purchase up to a maximum of $10,000 per year. For many people, it was too little.
  • My colleague, David Snowball, would add that the Treasury Direct website, registration process, and customer support are all (his words) “profoundly regrettable.” Nonetheless, you’ve got to work through that site to make purchases.

Senators Deb Fischer (R-Neb) and Mark Warner (D-VA) have introduced a new bill titled “The Saving Security Act of 2022”.  The senators’ announced goal is “to protect [Americans’] savings from changes in inflation by increasing the public’s ability to utilize I Bonds.” The pertinent highlights of the proposed bill are:

Currently, the Treasury Department caps annual purchases of I Bonds …. The Savings Security Act would require the Treasury Secretary to raise the annual cap to $30,000 per person when the average six-month annual Consumer Price Index for all Urban Consumers (CPI-U) is above 3.5%. The new purchase limit only applies to families and individuals. Businesses and trusts would not be eligible for the increased cap.

Thoughts: This is a step in the right direction and must be celebrated. It would be even better if the CPI-linked condition was eliminated altogether.

American savers have fantastic retirement savings accounts in the form of 401(K) or IRAs. It is easy to invest in the stock market through these accounts and compound capital through tax-free gains over decades. The best way to build long-term stock portfolios is to have stability in the portfolio. This stability can come from the $30,000 of Series I-Bonds contribution. Together, stock investment in 401k and Series I Bonds can be a dynamic combination.

Stocks will work from economic growth and profits. Series I bond will protect against inflation.

By carrying a diversified portfolio, a thoughtful investor would stop frivolous trading and other activities and concentrate on stashing away $50,000 a year in these fairly straightforward and simple products. Two cheers for simplicity!



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