June 10, 2021

Series I Savings Bonds

By Clete Albitz, CFP®

Investors are increasingly concerned with ways to protect their savings from rising inflation. Series I Savings Bonds are a unique asset that can meet this objective. These savings bonds are issued by the U.S. Treasury and the current annual yield is 3.54%.

This rate is comprised of a fixed rate, currently 0%, and a floating inflation rate set twice a year based on changes in the nonseasonally adjusted Consumer Price Index for all Urban Consumer (CPI-U). For current bonds, all the return is due to the inflation rate. The current semiannual inflation rate for bonds issued from May 2021 through October 2021 is 1.77%, which when annualized, equates to the current 3.54% annual rate. This rate will rise if inflation increases but can decline if inflation decreases. However, the rate can never fall below 0%.

Interest earned on Series I bonds is taxable at the federal level and tax free at the state level. The interest and principal are paid when the bonds are cashed and can be done as soon as one year after purchase. However, if you cash an I bond before it is five years old, you lose the last three months of interest. I bonds will continue to earn interest for 30 years if you don’t cash the bonds before they mature.

Each person can buy up to $10,000 in I bonds via TreasuryDirect.gov per calendar year. They are an asset class that will provide an inflation adjusted rate of return with no risk of loss. Please feel free to get in touch if you have any questions.

For a comprehensive review of your personal situation, always consult with your legal or tax advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.

Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.