Most of the financial news you read about these days seems bad, doesn’t it?  Inflation is way up, and for much of the year, the stock market has been way down.

Well, we have some good news for a change: There’s a way to take advantage of this.

It’s called an I-bond. 

An I-bond is a type of U.S. savings bond specifically designed to help protect investors from inflation.¹  I-bonds can be extremely useful for long-term saving because they earn a higher rate of return than simply sticking your money into a CD or savings account, while also being safe from stock market volatility.

Here’s how they work.  Every six months, the government recalculates the interest rates for I-bonds based on the consumer price index (CPI).  The CPI is a measure of how the price of various goods and services has changed over time.  Due to inflation, the index rose by 8.2% between September 2021 and September 2022.²  As a result, the I-bond rate has increased this year, too.  For example, any bonds issued between November 1 and April 30 of 2023 will earn 6.89% for six months.¹  (After that, the rate will be re-calculated again based on inflation.)

That’s the third-highest rate since I-bonds were created back in 1998!³  And it’s a lot higher than your average CD…with a lot less volatility than the stock market.  The reason there’s no volatility to speak of is that I-bonds can’t be bought and sold on the secondary market, so their value doesn’t change based on supply and demand like, say, stocks or regular corporate bonds.

Now, as always, there is a catch.  I-bonds come with a 12-month lockup period.  That means you cannot redeem the bond for 12 months after you buy.

Furthermore, I-bonds are designed to be held for at least five years.  If you cash in before then, you would have to pay a penalty equal to the last three months’ worth of interest.  For example, if you were to cash in after 18 months, you would only receive interest payments for the first 15 months.  This makes I-bonds a potentially great option for long- and medium-term savers.  But it’s not a good place for any money you might need in the next year or two.

Here are a few other things to keep in mind:

• Anyone with a Social Security Number can buy I-bonds, meaning you can buy them for both yourself and for family members.
• In a calendar year, one Social Security Number can buy up to $10,000 in I-bonds. However, you can also by an additional $5,000 if you use your tax refund.
• I-bonds earn interest for up to thirty years. The interest you earn is paid as a lump sum when the bond is cashed.

I-bonds must be purchased directly by the investor via the Treasury Direct website.  That means we at Feliciano Financial can’t purchase them for you, nor can any other broker or financial advisor.  (It also means we don’t receive any compensation for telling you about I-bonds.  We’re doing it because we care about educating you on all your options.  We want you to reach your financial goals and want you to know that these bonds might be a good way to help!)

Whew!  That was a lot of info about I-bonds!  The upshot, is that if you have any funds that you want to keep pace with inflation but not be subject to all the volatility in the stock market, take a careful look at I-bonds.

To learn more about these bonds, we recommend visiting https://www.treasurydirect.gov/savings-bonds/i-bonds/.  Or, feel free to give our office a call.  We’d be happy to answer any questions you have!

We hope this information was helpful.  As always, please let us know if there is anything we can do to serve you.  In the meantime, have a great holiday season!