A best kept investing secret hidden in plain sight—a 7% US savings bond

November 23, 2021
2 mins

Some of the best principles to abide by in life are seemingly ironic truths. Letting go of something you want, less is more, buying the dip, and the fact that oftentimes, the best-kept secrets are usually public information for anyone to find. 

Wait, what? The concept of being hidden in plain sight is very real, because who’s going to come looking for something that’s not hiding? The world of investing is no exception to this, and we’ve recently unearthed a somewhat forgotten gem that could be one of the best-kept secrets in investing.

Bonds for dinner again, Finny? 

Yes, we're back at it with the bond talk, but not just any kind of bond... we're talking about the government savings bond referred to as Series "I" (I for inflation) offering an eye-popping 7.12% rate of return on bonds issued between November 2021 and April of next year. 

The fun stuff you should know first

  • Basics: Series I bonds are one of two kinds of savings bonds issued by the US treasury. They come with a rate in two parts, the first being a fixed portion of the rate (currently 0%), and the other being an inflation-adjusted number, changing every 6 months by the Treasury. Think of them as inflation-protected savings accounts backed by the full faith and credit of the US government.
  • Important info: Series I bonds can become exempt from multiple layers of income taxes if redeemed and used for qualifying higher education expenses in the same year. You’re also limited to how much you can buy, specifically $10,000 per social security number per year ($20K for married couples), and an extra $5,000 with tax return money. You also can’t purchase them in an IRA, nor can you redeem them within 12 months of purchase, and redeeming them prior to 5 years gets you a penalty of 3 months interest. 
  • Perspective: Since they usually can't be cashed out before a year of holding them, think twice before investing cash you might need immediately. Also, evaluate I bonds to comparable options like a 12-month CD or TIPS (Treasury Inflation-Protected Securities).
  • Other types: Their counterparts—EE savings bonds—come with a fixed rate and are guaranteed to double in value over 20 years. They're low risk and you're giving up the potential upside of Series I bonds by playing the super conservative long game. 
  • Inflation warning: Series I bond rates go up as consumer prices do. Because the interest rate on these bonds is dependent on inflation, that means it can be a little misleading, and potentially be lapped by either rising prices or failure to redeem them in time. 
  • How to buy them: You'll have to buy them directly from the TreasuryDirect website, and while you're there, check out all the FAQs and resources they have available.

💭 Thinking you'd benefit from a quick refresher on inflation? If so, take this quiz-based lesson:

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