Are I Bonds a Safe Investment?

I bonds are safe in the sense that they’re backed by the U.S. government. But there’s more to know about this inflation-protected investment.

Written by Medora Lee / September 28, 2022
Reviewed by Conrad de Aenlle

Quick Bites

  • Series I savings bonds, known as I bonds, are issued by the U.S. government and are designed to protect against inflation.
  • There are two income components: one paid at a fixed rate and another that takes the inflation rate into account that is adjusted each May and November.
  • With stocks and bonds losing value this year, investors should consider I bonds as an alternative.

Inflation has reached a 40-year high. Just about everything, from your summer vacation to your daily coffee, is rising in price. Meanwhile, financial markets are plunging, and your investments are losing value. Where are you supposed to turn to earn a decent return on your money?

The answer may be Series I savings bonds, or I bonds. The U.S. government issues Series I savings bonds that pay you back at two different rates: one fixed rate (currently 0%) plus an additional rate amount that reflects the consumer price index, or CPI, a widely followed measure of inflation. This second component is adjusted every May and November.[1]

Here’s more on investing in I bonds, including their rates, how much you can invest and how to decide if they’re a good option for you.

Inside this article

  1. Are I bonds a good investment?
  2. Can you lose money on I bonds?
  3. Do emergency funds belong?
  4. Should you move your 401(k)?
  5. When do I bond rates change?
  6. I bond returns vs. stocks
  7. How long until I bonds mature?
  8. Is it easy to cash in I bonds?

Are I bonds a good investment?

The short answer is possibly. But particularly in times of high inflation, I bonds can yield impressive returns because part of the rate is based on the rate of inflation.

The latest I bonds issued from May through October yield 9.62%, composed of a 0% fixed rate and an inflation adjustment of 9.62%. The CPI over the 12 months through April increased 8.3%. That means you’re beating inflation, at least for now. And because they are fully backed by the U.S. government, I bonds are among the safest investments you can make.[2]

Tip

Bonds can be issued by companies or governments when they want to raise money. By buying a bond, you’re giving the issuer a loan, and they agree to pay you back the face value of the loan on a specific date, and to pay you periodic interest payments along the way, usually twice a year, according to Vanguard, an investment advisor.

I bonds can be bought only by individuals and their trusts and entities, not investment funds. You can invest up to $10,000 per year, plus $5,000 more if you use your tax refund to purchase them. They are also relatively affordable, with values starting at $25.

Can You Buy I Bonds for Kids?

Can You Buy I Bonds for Kids?

Yes, you can buy I bonds for kids, and they can be a good investment. Here’s what to know.

Find out more

Can you lose money on I bonds?

No. You’re always guaranteed to get back at least what you paid for it. The redemption value of the bond will never decline, and the interest rate can’t fall below 0%. There may be other sorts of government or corporate bonds that produce higher returns, depending on market conditions, but they may carry higher risk.

Should you put emergency funds into an I bond?

Probably not. I bonds are a great, safe investment but they’re paid out at the end of their 30-year maturity. You can cash them in after 12 months, but if you redeem an I bond within five years of purchase, you give up three months of interest.

Also, it’s good to be aware that while individuals can purchase I bonds online directly from the Treasury, there is no secondary trading market for them.

Most people buy these bonds online, but if you get a paper bond, say, as a gift for someone, keep in mind that they can’t just ask their broker to unload the bond in a heartbeat. You can sell paper bonds only by sending them to the Treasury or finding a bank that will accept them, which can take a while.

Can I Buy I Bonds as a Gift for Someone Else?

Can I Buy I Bonds as a Gift for Someone Else?

Yes! You can buy I bonds as a gift for a loved one. We’ll walk you through the process.

Find out more

Should you move your 401(k) or retirement money into I bonds?

You actually can’t purchase I bonds in a retirement account like a 401(k) or IRA because they already have tax advantages. Since there are no payouts until the bond matures or is sold, you won’t pay taxes on it until then. When you do cash out, you will owe federal tax but no state or local taxes.

If proceeds are used to pay for higher education, they might be fully tax exempt. You can check here for the requirements for tax exemption.

When do I bond rates change?

One rate for the I bond is fixed, at 0%, while the other is variable—it changes every six months, based on the consumer inflation rate set on the first business day of May and November.

Current I Bonds Rates (History)

Current I Bonds Rates (History)

Many investors are using I Bonds to hedge against inflation. Here’s what to know about current I Bond rates.

Find out more

I bond returns vs. the stock market

Stocks are riskier assets, in part because they aren’t guaranteed like Treasury bonds. That means returns from stocks may be much higher or lower.[3] But in times when there is high inflation, I bonds could provide impressive returns.

How long does it take I bonds to mature?

I bonds take 30 years to mature. If you’re still holding the I bond 30 years from your purchase date, you can redeem it to collect all the interest you earned over that time as well as the face value, or what you originally paid.

Is it easy to cash in your I bonds?

I bonds can be bought and sold online with ease using the TreasuryDirect portal. Log in and use the link for cashing in securities in “ManageDirect.”

For paper bonds, you have two options.[4]

  • If you hold an account at a local bank and it cashes savings bonds, ask the bank if it will cash yours. The answer may depend on how long you’ve held an account there. Find out what dollar limit, if any, it has on redemptions and what identification and other documents you may need. Note that some banks may not cash savings bonds at all.

  • Send them to Treasury Retail Securities Services, along with FS Form 1522. You don’t need to sign the bonds. You will have to validate your identity. FS Form 1522 explains how to do that and it also includes the address.

You must hold I bonds for at least 12 months before redeeming them, then you can cash in a minimum of $25 or any amount above that in one-cent increments. If you cash only a portion of a bond’s value, you must leave at least $25 in the TreasuryDirect account. When you redeem, you get both your initial principal and interest.

Overall, I bonds are a safe investment to hedge against inflation, especially if you’re feeling a bit gun-shy about investing at all, considering the volatility across many markets right now.

Article Sources
  1. “How to Hedge Against Inflation Using I-Bonds,” Morning Start, https://www.morningstar.com/articles/1093977/how-to-hedge-against-inflation-using-I Bonds.
  2. “TIPS Versus I-Bonds,” Morning Start, https://www.morningstar.com/articles/446942/tips-versus-I Bonds.
  3. “What Is the Average Stock Market Return?” Sofi, https://www.sofi.com/learn/content/average-stock-market-return/.
  4. “I Bonds Explained! (Is 9.62% Guaranteed for Real?),” District Capital Management, https://districtcapitalmanagement.com/IBonds/#4_reasons_why_they_might_be_good_investments.

About the Authors

Medora Lee

Medora Lee

Medora has more than 25 years of experience reporting, writing and editing mostly as a finance and economics journalist around the globe. She has covered every aspect of finance and economics, including the fall of Barings Bank in 1995 and Europe's transition to Economic and Monetary Union and the birth of the euro. She has worked at such international stalwarts as Reuters and Forbes.com as well as startups that grew up like theStreet.com.

Full bio
Conrad de Aenlle

Conrad de Aenlle

Conrad de Aenlle is a writer and editor with more than 30 years of experience in topics related to financial services and investment, including market performance, portfolio management, economics, retirement issues, estate planning, taxation and insurance.

Full bio

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