Americans scramble to invest in I bonds as inflation breaks records

There’s little to gain from towering inflation, but the Series I Bond is one silver lining. With the cost of living up 8.5% from one year ago, any money making less than that return is a losing investment. But the I bond is a virtually risk-free investment that now pays nearly 10% interest.

Definition

A Series I Bond is an inflation-adjusted U.S. government savings bond, backed by the full faith and credit of the U.S. government.

The ‘i’ in I Bond stands for inflation, and the interest rate earned on the bond is tied to the consumer price index. While inflation has been soaring, so has the return on this investment, which just hit an all-time high of 9.62% for the next six months.

How it works

The I bond is calculated based on two rates: a fixed rate, which can’t go below zero, and an inflation rate. The inflation rate adjusts two times a year, in November and May. Taking into account the 40-year-high inflation numbers facing the country, the I Bond just jumped to a record high itself on May 2, and Americans are scrambling to invest.

Too good to be true?

Before you rush to buy in, here are the rules of a Series I Bond:

• The maximum annual purchase is $10,000 per person. You can buy directly through the Treasury department on this website.
• There is an option to buy an additional $5,000 using your federal tax refund, but that has to be elected when you file your return.
• You must hold a Series I Bond for at least one year after purchase and it can earn interest up to 30 years.
• If you cash out before five years, you forfeit three months of interest.
• The money made on the bond is subject to federal tax, unless you use it to pay for qualifying higher education costs the same year you cash out.

Because investors are required to hold onto I Bonds for at least one year, financial advisors warn that this is only an investment for spare cash, not emergency cash.

The other thing to keep in mind: experts believe inflation will go down this year and anticipate the return on the Series I Bond will be lower when the rate adjusts again in November.

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