Great question! Let’s start with explaining what a Series I bond is:

Series I bonds are a low risk and possibly low return way to access a unique bond with both a fixed coupon and a floating component tied to inflation. In periods where inflation is high -like right now- the Treasury is issuing new bonds paying an eye popping 7.12%, which will reset every six months. As of November 2021, the fixed rate is set at 0.0%. Keep in mind that this fixed rate will apply to the life of the bond. If we’re experiencing low to negative inflation (deflation), the bonds will essentially pay 0.0% because the floating component resets every six months. There are also low investment maximums where the cap is $10,000 per calendar year, per person. If we continue to see inflation, this higher rate can present itself the following 6 months. Here are a few other details to consider:

Rates & Terms:

• Series I bonds have an annual interest rate derived from a fixed rate and a semiannual inflation rate.

• Interest, if any, is added to the bond monthly and is paid when you cash the bond.

• Series I bonds are sold at face value; i.e., you pay $50 for a $50 bond.

Redemption Information:

• Minimum term of ownership: 1 year.

• Interest-earning period: 30 years or until you cash them, whichever comes first.

Early redemption penalties:

• Before 5 years, forfeit interest from the previous 3 months.

• After 5 years, no penalty.

Tax Considerations:

• Series I bonds are exempt from taxation by any State or political subdivision of a State, except for estate or inheritance taxes.

• Interest earnings are subject to Federal income tax.

• Interest earnings may be excluded from Federal income tax when used to finance education (see education tax exclusions).

Should you buy a Series I Bond? It depends on inflation:

If you think that inflation is transitory (temporary), the holding requirements makes this investment run the risk of paying zero for at least 5 years. Selling early will forfeit three months of interest payments.

If you think that inflation is here to stay, then these bonds will continue to pay healthy income. But due to the low investment cap, this investment alone won’t typically help investors hedge inflation fully.

As a part of an investment portfolio, Series I bonds are low risk but possibly too insignificant (again, due to low investment limits) to generate sufficient income or to properly keep up with inflation.

You can access more information on Series I Bonds here: https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm

The information provided in this commentary is for educational and informational purposes only and does not constitute investment advice and should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status, or investment horizon. You should consult your attorney or tax advisor.

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