What is a Series I Bond?
Check out this blog post to see what a Series I Bond is.
This post is about pros and cons of I Bonds.
Series I Bonds Pros:
1. Low risk
Series I Bonds are considered low risk investments, because they’re backed by the U.S. government.
2. Inflation Protection
An aspect of a Series I Bond is that it protects against inflation. As mentioned in this post, that’s why the Series I Bond has gained a lot of attention recently, as inflation has skyrocketed, but so have the interest rates of Series I Bonds. The interest rate is based on a fixed rate and an adjustable rate, which is tied to inflation.
3. Tax Benefits
Interest earned on Series I Bonds is exempt from local/state taxes. It could be potentially exempt from federal taxes if used for educational expenses. Check this out for a list of qualified educational expenses.
4. Flexible
Series I Bonds can be redeemed after 1 year (12 months). However, investing in Series I Bonds is intended to be long-term. So redeeming your Series I Bond before 5 years, you’ll lose the last 3 months’ of interest.
5. Easy to Purchase
Using the U.S. Treasury Direct’s website, you can easily purchase Series I Bonds. All you need to do is set up an account if you don’t already have one, sign up with the bank account you’d like funds pulled from, and with a few more clicks, you’ll be the owner of a Series I Bond!
Series I Bonds Cons:
1. Low Returns
In general, bonds are safe investments but offer low interest rates than other investments with relatively higher risk. Check this post out to see historical interest rates of Series I Bonds.
2. Slow Growth
While the interest rate adjusts in relation to inflation, the interest rate only adjusts every 6 months (May and November).
3. Inflation Risk
Since it only adjusts every 6 months, there is no guarantee that the interest rate will match the peak inflation rate.
4. Limited Purchasing Options
Series I Bonds can only be purchased using the U.S. Treasury Direct’s website, as well as some participating financial institutions. Therefore, decreasing the accessibility of purchasing Series I Bonds.
5. Max Purchasing Limit
Currently, there is a maximum purchasing limit of $10,000 per year. So you can only invest up to $10,000 per calendar year.
