Series I Savings Bonds -- more commonly known as "I bonds" -- are designed to protect the purchasing power of your money from the damaging effects of inflation. And while these instruments come without risk and could end up paying quite a lot if inflation heats up, they aren't perfect for everyone.
Here's a quick rundown of the perks and potential drawbacks of buying I bonds in 2024 to help you decide if they're the right fit for your saving and investing strategy.
Reasons to consider I bonds in 2024
I bonds that are issued from November 2023 through Apr. 2024 have an initial yield of 5.27%, which is guaranteed for the first six months and will be adjusted for inflation every six months thereafter.
The obvious reason to buy I bonds in 2024 is for the high initial yield combined with long-term inflation protection. Specifically, the 5.27% yield is a combination of a 1.3% fixed rate that will remain for the life of the bond, as well as an inflation adjustment, which when annualized produces the total yield of 5.27%. If inflation were to spike higher unexpectedly or stay elevated for a long time, your I bond yield would adjust every six months to compensate.
Potential I bond drawbacks to keep in mind
There's no such thing as a savings or investment vehicle that is perfect for everyone, and I bonds aren't an exception. Before you open a Treasury Direct account and start putting your money into I bonds, here's what you need to keep in mind.
- Withdrawal restrictions: One big downside you need to consider is that you cannot cash in an I bond for at least a year, and you'll be hit with a penalty if you cash out within the first five years. Because of this, I bonds are most appropriate for people who won't need their money for a while.
- If inflation disappears: While I bonds can be a great way to protect yourself from high inflation, it's also important to realize that if inflation slows down, your I bond yields could end up lower.
- Purchase limitations: Direct I bond purchases are limited to $10,000 per person, per year. You can purchase as much as $5,000 in additional I bonds if you use your tax refund, but at most, any one person cannot purchase more than $15,000 of I bonds in a given year.
- Compare with other high-yield, risk-free vehicles: It's important to compare I bonds to other risk-free savings vehicles. For example, while a certificate of deposit (CD) won't necessarily help you if inflation spikes, you can find 1-year CDs through reputable banks with yields that are even higher than the 5.27% paid by I bonds as of this writing. I bonds are designed to pay more in an inflationary environment, but not necessarily in a high-interest environment. It's entirely possible to have one without the other.
No perfect answer
Like most investment vehicles, bonds aren't a great fit for everyone. If you're looking to protect some of your savings that you won't need for a while from inflation, I bonds could be a good fit for you. However, there are some significant drawbacks to keep in mind before you start buying.
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FAQs
Reasons to consider I bonds in 2024
Are I bonds a good investment in 2024? ›
At an initial rate of 4.28%, buying an I bond today gets roughly 1% less compared to the 5.25% 12-month Treasury Bill rate (May 1, 2024). You could say that buying an I Bond right now is a 'fair deal' historically compared to 2021 & 2022 when I Bond rates were much higher than comparable interest rate products.
Is now a good time to buy bonds in 2024? ›
As inflation finally seems to be coming under control, and growth is slowing as the global economy feels the full impact of higher interest rates, 2024 could be a compelling year for bonds.
Are I bonds worth the hassle? ›
Depending on the inflation rate, I-bonds can offer returns that are significantly higher than those of other low-risk investments like certificates of deposit (CDs) or high-yield savings accounts. I-bonds are also attractive because investors bear almost no risk of losing their principal.
What is the downside of an I bond? ›
I bond cons
The initial rate is only guaranteed for the first six months of ownership. After that, the rate can fall, down to a fixed-rate component which, as of May 2024, stood at 1.3%. One-year lockup.
Are I bonds guaranteed to beat inflation? ›
The actual rate of interest for an I bond is calculated from the fixed rate and the inflation rate. The combined rate changes every 6 months. It can go up or down. I bonds protect you from inflation because when inflation increases, the combined rate increases.
What is a better investment than I bonds? ›
Another advantage is that TIPS make regular, semiannual interest payments, whereas I-bond investors only receive their accrued income when they sell. That makes TIPS preferable to I bonds for those seeking current income.
Should I buy bonds when interest rates are high? ›
Should I only buy bonds when interest rates are high? There are advantages to purchasing bonds after interest rates have risen. Along with generating a larger income stream, such bonds may be subject to less interest rate risk, as there may be a reduced chance of rates moving significantly higher from current levels.
Is it smart to buy bonds now? ›
Answer: Now may be the perfect time to invest in bonds. Yields are at levels you could only dream of 15 years ago, so you'd be locking in substantial, regular income. And, of course, bonds act as a diversifier to your stock portfolio.
Should I invest in emerging markets in 2024? ›
Constructive outlook, despite loaded election calendar and geopolitical risks. Emerging markets' growth is expected to remain steady in 2024 at around 4%.
You can count on a Series I bond to hold its value; that is, the bond's redemption value will not decline.
How much is a $100 savings bond worth after 20 years? ›
How to get the most value from your savings bonds
| Face Value | Purchase Amount | 20-Year Value (Purchased May 2000) |
|---|
| $50 Bond | $100 | $109.52 |
| $100 Bond | $200 | $219.04 |
| $500 Bond | $400 | $547.60 |
| $1,000 Bond | $800 | $1,095.20 |
Interest earned on I bonds is exempt from state and local tax but subject to federal tax. The interest is taxed in the year the bond is redeemed or reaches maturity, whichever comes first.
Why is bond not a good investment? ›
There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall.
Should I buy tips in 2024? ›
April 2024, in fact, is also an opportune time for making new TIPS investments. But as this chart shows, real yields could go higher. Or, as happened in the months after October 2023, they could move sharply lower.
What is the new I bond rate in May 2024? ›
The 4.28% composite rate for I bonds issued from May 2024 through October 2024 applies for the first six months after the issue date. The composite rate combines a 1.30% fixed rate of return with the 2.96% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).
How long should you hold series I bonds? ›
Can I cash it in before 30 years? You can cash in (redeem) your I bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest. For example, if you cash in the bond after 18 months, you get the first 15 months of interest.
What will treasury rates be in 2024? ›
Fiscal Year 2024
| From and Including | Up To But Not Including | Rate |
|---|
| 8 years - 1 month | 12 years - 3 months | 4-1/4% |
| 12 years - 3 months | 15 years - 0 months | 4-3/8% |
| 15 years - 0 months | 25 years - 4 months | 4-1/2% |
| 25 years - 4 months | 30 years - 1 day | 4-3/8% |
12 more rowsIf you want to keep all your good interest and get the most out of your I Bonds you should cash out: after earning 3 months of lower interest and. just after the 1st of the month.
What are the disadvantages of TreasuryDirect? ›
Securities purchased through TreasuryDirect cannot be sold in the secondary market before they mature. This lack of liquidity could be a disadvantage for investors who may need to access their investment capital before the securities' maturity.
