Retirement Investing Strategies and Articles

Are Series I Bonds Right for Retirees?

by Alli Thomas

Jul 16, 2022

There have been lots of headlines lately about how investing in Series I savings bonds, which offer an initial interest rate of 9.62% through October 2022, can help investors keep up with the current red-hot inflation rate.  

If you’re approaching (or in) retirement, however, are these bonds as good an investment as they are for younger investors? Let’s break it down. 

What is a Series I savings bond? 

These inflation-protected bonds are issued by the U.S. Treasury Department. The bonds earn interest based on both a fixed rate (currently is 0.00%) and a rate based on inflation, which is set twice a year. A Series I bond earns interest until it reaches 30 years or you cash it, whichever happens first. 

Investors who buy Series I bonds from May 2022 through October 2022 will earn interest at an annual rate of 9.62% for the first six months after the bond is purchased. The Treasury announces new rates on the first business day of May and November and rates adjust on issued bonds to the new levels every six months based on the month in which they were issued. 

The interest income you’ll receive from Series I bonds are subject to federal income tax but is exempt from state and local income taxes. 

How much does a Series I bond cost and how do I buy one? 

If you want to buy a Series I bond, you’ll pay the face value of the bond itself. For example, if you want to buy a $100 Series I bond, you’ll pay $100 for it.  

The minimum Series I bond purchase is $25. How much you can buy depends on your purchase method. If you buy electronically, you may purchase up to $10,000 in Series I bonds per year; if you buy paper bonds, the annual purchase limit is $5,000. 

There is also another difference between paper versus electronic purchases: when you buy paper Series I bonds, there are only five denominations: $50, $100, $200, $500, and $1,000. If you purchase these bonds electronically, there is no set denomination–you can buy them up to the penny, starting at at least $25. 

Although the maturity of Series I bonds is 30 years, you don’t necessarily need to hold them for that long. However, you do have to hold them for at least 12 months. And, if you cash out before the bond is five years old, you will forfeit the last three months’ worth of interest payments. 

I recently retired – is the Series I bond a good investment for me?

If you’re ultra-wealthy, probably not. However, for most people (regardless of age and stage in life), the Series I bond looks like a good investment even if you don’t hold it for 30 years. As a rule, securities issued by the U.S. Treasury are among the lowest-risk investments out there and provide a safe inflation hedge. The Series I bond is backed by the full faith and credit of the U.S. government, so its face value will never decline. And because inflation is so high at the moment, the interest you will earn on a Series I bond is much higher than that of any other similar low-risk investment.  

For more ideas on how to retire during times of high inflation, schedule a free, no-obligation meeting with one of our financial advisors by clicking here. 

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Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k) administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

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