Suze Orman: Series I bonds are the one investment every person should have right now (2024)

FAQs

Who should invest in Series I bonds? ›

In addition, series I bonds are exempt from state and local income taxes, which makes them an even better low-risk investment for investors who live in high-tax states and cities. Investors can buy up to $10,000 worth of I bonds annually through the government's TreasuryDirect website.

Are I bonds a good investment for you? I bonds can make good short-term investments, but you should feel comfortable holding them for at least one year and ideally, five years before cashing them in. They can be a good fit for seniors who want to earn interest on their savings while also keeping their nest egg safe.

I Bond cons

The initial rate is only guaranteed for the first six months of ownership. After that, the rate can fall, even to zero. One-year lockup. You can't get your money back at all the first year, so you shouldn't invest any funds you'll absolutely need anytime soon.

For example, you can buy a Treasury Note directly from the U.S. government. Treasury bonds are similar to treasury notes but have a maturity date ranging from 20 to 30 years. Of the different types of treasury bonds, Orman recommends I bonds.

Beware of I bonds' drawbacks

The biggest red flag for short-term investors: You can't redeem these bonds for a year after you purchase them, and you'll owe a penalty equal to three months' interest if you cash out any time over the first five years of owning the bond.

I bonds can be an excellent addition to a retiree's fixed income allocation. With built-in inflation protection and low-risk levels, they're a beneficial way for retirees to beat inflation without risking short-term losses like investing in the stock market.

Both offer inflation protection, but TIPS Have Higher Yields. Much as I love I Bonds, the government's inflation-adjusted savings bonds, Treasury Inflation-Protected Securities (TIPS), may be a better option today. They are providing an even better yield over inflation than I Bonds.

If you're carrying any debt with an interest rate above 6%, you may want to pass on I bonds. You'll lose more money to interest on your debt than any interest you earn on an I bond, especially since I bond rates will likely drop back down over time, according to Fernández Paulino.

inflation rate can vary. You can count on a Series I bond to hold its value; that is, the bond's redemption value will not decline.

I bonds have never been popular due to low interest and low inflation rates. However, inflation has increased, making these safe bonds more attractive. The cap at $10,000 and the annual interest of $689 might not be worth the hassle of owning and keeping up with a separate account.

Is there any risk with I bonds? ›

Otherwise known as “I bonds,” these virtually risk-free investments already have a lot going for them: they're backed by the U.S. government, their value doesn't go down, they offer tax benefits and — arguably most appealing — they now pay almost 7% in interest a year. This high return is thanks to inflation.

Series I savings bonds protect you from inflation. With an I bond, you earn both a fixed rate of interest and a rate that changes with inflation.

Buffett recommends short-term government bonds. Bonds like these finance government projects.

Bonds that are rated below investment grade (that is, BB or lower by S&P, Ba or lower by Moody's) are sometimes called "junk" bonds. ² They may be appropriate for investors who can withstand higher price volatility and default risk while seeking increased investment cash flow potential.

10-year Treasury Note

U.S. Treasury bonds are considered the safest in the world and are generally called “risk-free.” The 10-year rate is considered a benchmark and is used to determine other interest rates such as mortgage rates, auto loans, student loans, and credit cards.

Use Your Tax Refund

Although each individual can only purchase $10,000 in I bonds each calendar year, there's a loophole: Those who use their federal income tax refunds can buy an additional $5,000, bringing the total to $15,000.

One key relationship explains why bonds did so badly in 2022: Bond prices and interest rates move in opposite directions. “The Federal Reserve raised rates more than they have in 40 years. That caused massive losses inside of bonds,” says Robert Gilliland, managing director at Concenture Wealth Management.

Suze Orman: Series I bonds are the one investment every person should have right now. If there is one investment every person should have right now, it is a series I bond, according to personal finance expert Suze Orman.

The composite rate for I bonds issued from November 2022 through April 2023 is 6.89%.

Bonds, especially bonds from governments and major companies, also tend to be a safe investment. They can also offer much higher return than savings accounts. In exchange for the higher return, you give up flexibility because you cannot redeem bonds at any time.

Can I buy $10000 worth of I bonds every year? ›

A given Social Security Number or Employer Identification Number can buy up to these amounts in savings bonds each calendar year: $10,000 in electronic EE bonds. $10,000 in electronic I bonds. $5,000 in paper I bonds that you can buy when you file federal tax forms.

The best bet is to wait 3 more months until the March CPI report is issued on 4/12/2023. That will allow the investor to know the variable rate on I-Bonds sold after May 1. (Or the rate for the second six months on I-Bonds sold before May 1.) Only if the rate is better than CDs would I then buy I-Bonds before May 1.

One of the downsides of I bonds, however, is the annual purchase limit, Sestok said. Individuals can buy $10,000 worth per calendar year and use their federal tax refund to buy an extra $5,000 in paper bonds. You can also buy another $10,000 through businesses, trusts or estates.

$10,000 limit: Up to $10,000 of I bonds can be purchased, per person (or entity), per year. A married couple can each purchase $10,000 per year ($20,000 per year total).

Remember, you need to wait at least one year to cash out an I bond. If possible, it's a good idea to wait five years or more to redeem this investment. If you cash it in before five years are up, you'll miss out on the last three months of interest earned.

First, here are some details about the U.S. Series I Savings Bond, a security that earns interest based on combining a fixed rate and an inflation rate. The fixed rate will never change. Purchases through April 30, 2023, will have a fixed rate of 0.4%.

You may purchase up to $10,000 each of electronic EE and I Savings Bonds, per person (individual or entity), each calendar year. Purchases of any other Treasury securities do not alter the purchase limits for electronic EE and I Savings Bonds.

You cannot “split” beneficiaries on a Savings Bond. You get to name one person — either as co-owner or beneficiary. So if your brother dies before you, you'll have to name one person.

The “I” stands for inflation. The interest rate on I Bonds is directly correlated with inflation. If inflation is high, the interest rate is high. If inflation is low, the rate is low.

Ramsey's investing philosophy

Ramsey does not recommend investing in bonds, CDs, real estate investment trusts, or cash. Even if you are about to retire, he recommends having your retirement funds invested in all equities. Investing involves a lot of risk.

Do millionaires buy bonds? ›

According to Vanguard, the asset allocation of a typical millionaire household is: 65% Stocks (Equity) 25% Bonds (Fixed income) 10% Cash.

Perhaps more noteworthy, though, is that the part of millionaires' portfolios designed to buffer them from bear markets isn't working. Millionaires put 18% of their portfolios in bonds.

Key Takeaways

Bonds are considered less volatile and safer investments than stocks but they can still crash.

If sold prior to maturity, market price may be higher or lower than what you paid for the bond, leading to a capital gain or loss. If bought and held to maturity investor is not affected by market risk.

In general, stocks are riskier than bonds, simply due to the fact that they offer no guaranteed returns to the investor, unlike bonds, which offer fairly reliable returns through coupon payments.

In most cases, to purchase I Bonds you must open an account at the government's TreasuryDirect website.

If you're saving for education or retirement, Roth IRA and 529 accounts are popular options to explore. And they may offer better tax deductions or a higher Annual Percentage Yield (APY) than a savings bond.

Making your decision about when to buy your next batch of I-bonds depends on how you feel about the overall U.S. economic situation. If you feel optimistic that inflation is waning and will go back soon to more normal 2% levels, you may want to buy the full amount now and capture as high a rate as you can.

Series I savings bonds protect you from inflation. With an I bond, you earn both a fixed rate of interest and a rate that changes with inflation.

How long should you hold Series I bonds? ›

You must own the bond for at least 5 years to receive all of the interest. You can cash out an I Bond after one year, but if you withdraw it before 5 years, you'll forfeit 3 months of interest.

TIPs offer comparable inflation protection relative to I Bonds at higher yields, a significant advantage. TIPs are also somewhat riskier, more volatile securities, with quite a bit of interest rate risk. Both asset classes are good investments, but TIPs are slightly better, due to their higher yields.

Series I Savings Bonds are the best overall because their earnings adjust with inflation, come in both paper and electronic forms, and may avoid Federal taxation when used to pay for education.

Series I bonds are considered low risk since they are backed by the full faith and credit of the U.S. government and their redemption value cannot decline. But with this safety comes a low return, comparable to that of a high-interest savings account or certificate of deposit (CD).

Series I bonds do offer some tax advantages, too. Interest on the bonds is exempt from state and local taxes, though you'll still have to pay federal taxes on the gains. And using the interest to pay for higher education may help you avoid paying federal taxes on the interest income, too.

What will the May 2023 I Bond inflation rate be? The May 2023 I Bond inflation rate is projected at 2.40%* based on 4 months (out of 6 needed) CPI-U data.

However, if a bond is cashed within the first five years after its issue date, interest earned during the three months prior to cashing will be forfeited. Once a Series I bond is five years old, there is no interest penalty for redemption.