What's all the excitement about I Bonds?

What are I Bonds, and what’s all the excitement about?


I Bonds, also known as Series I Savings Bonds, are a type of savings bond issued by the U.S. Department of the Treasury. They're designed to be a safe and low-risk investment option for individuals who want to protect their savings from inflation without fear of market fluctuation.

What sets I Bonds apart from other savings bonds is their interest rate structure. They're composed of a fixed rate and a variable rate that's adjusted twice a year based on changes in the Consumer Price Index for all Urban Consumers (CPI-U).

Here's how it works

The fixed rate stays the same for the entire life of the bond, while the variable rate is based on inflation and changes every six months. The variable rate is determined by taking the CPI from the previous six months and adjusting it for inflation. This means that the interest rate on I Bonds can increase or decrease over time, depending on the inflation rate.

What's more, I Bonds are inflation-protected and backed by the full faith and credit of the U.S. government, which means that their principal value will never go down due to inflation. Instead, they'll always be worth at least their face value, plus any accrued interest.

Another benefit of I Bonds is tax treatment

The interest earned on I Bonds is exempt from state and local income taxes, and it's also deferred from federal income tax until the bond is redeemed or reaches its 30-year maturity. This means you will only have to pay taxes on the interest once you cash in the bond.

Why are you hearing so much about I Bonds now?

Due to the high rate of inflation currently experienced in the United States, I Bonds are generating more returns for their investors. I Bonds' current interest rate is 5.27%; this rate will apply for I Bonds issued from November 2023 through April 2024. New inflation rates are set on May 1st and November 1st of each year based on the changes in the Consumer Price Index for all Urban Consumers (CPI-U).

One thing to keep in mind is that there are annual purchase limits for I Bonds. You can buy up to $10,000 worth of I Bonds annually electronically through TreasuryDirect and another $5,000 worth of paper I Bonds when you file your tax returns.

How you can make this work for you

If you're saving up for something over the short term, meaning five years or less, like a new car, a kitchen overhaul, or a family vacation, you may want to check out I Bonds for a short-term investment strategy that won't leave you sweating about losing your cash due to market fluctuations. Considering the Federal Reserve’s interest rate policy fighting to reduce inflation, it wouldn’t hurt to run this by your financial advisor to see how the current I Bond rates compare to other short-term investment options, such as CDs and high-yield savings accounts.

With I Bonds, you'll get a predictable return while inflation rides high, and you won't have to take a hit on your principal investment. So, when it's time to book your stay at the luxurious Ocean Club Resort, you can do it with confidence, knowing your money's working for you.

The bottom line

I Bonds may not be the most glamorous investment option. But they’re an option that may be worth reviewing for individuals who want to protect their savings from inflation and earn a predictable rate of return.


William S. van Valzah lll, CRPC®


William S. van Valzah lll is a Senior Financial Professional at Empower. A Chartered Retirement Planning Counselor, he is responsible for  holistically understanding clients' needs and providing financial insight to help them make informed decisions.

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