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  • Writer's pictureBridget Sullivan Mermel CFP(R) CPA

Why We Love I Bonds: Series I Bonds. 9.62% Guaranteed in CD-like investment...What's not to Love?

Updated: May 25, 2022

We Love I Bonds. These are inflation-adjusted savings bonds that are issued by US Treasury Direct. Here are three reasons we love them:

One. 9.62% interest for the next 6 months.

Two. Guaranteed

Three. Safe.

In this video we’ll give you the details about I bonds—the interest, what to watch out for, and the drawbacks of investing in I bonds.

We've been talking about I bonds for quite some time. Here are four videos we've made about them: John first described the basics about these savings bonds when they were making 3.5%:

We called on Linda Stratton, an advisor who has been using them since 2005, to help us understand more of the ins and outs in this video:

Linda Stratton joined us again to discuss gifting I Bonds to children, and I Bonds versus 529 plans:

Most recently, when rates were going up, we did a granular dive into how the interest rate works on I Bonds:

00:00 Welcome

00:55 Interest rate is 9.62%

01:24 I Bonds are safe

02:23 Guaranteed

04:30 Who shouldn’t buy

Here's Bridget's firm website:

John's firm website:

For advisors around the US:

Thanks for watching and please subscribe!


Bridget: We love I bonds. In today's episode, we're going to talk about why. We'll be covering the interest rate, who they're good for, who they're not so good for, and the other things to think about when you're considering I bonds. At the end, it you'll know a lot more about I bonds and if you should go ahead and get them or not. Hi, I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois.

John: And I'm John Scherer. I have a fee-only financial planning practice in Middleton, Wisconsin. Before we dig into I bonds, I want to remind all viewers to hit that subscribe button. That helps other people on YouTube find this great information, so please hit subscribe. And then let's dig into I bonds, Bridget. It is one of those things, it’s in the paper, and people are reading about it now, but we've loved I bonds for a long time.

Bridget: Yeah. Right. I mean we were quoted on CIBC.

John: That’s right.

Bridget: So what is the number one thing you love about I bonds?

John: Well, I mean, it's right up front these days, just in the last week or two here: the new rates. Rates get set every six months. The current rate in I bonds is over nine and a half percent.

Bridget: 9.62%

John: Where can you get that in a bank or a CD or anyplace else? So right in your face, nine 9.62% annualized interest. That is one reason why I love I bonds.

Bridget: Exactly. The second one reason I love I bonds is that they're safe. They're backed by the US Treasury, that is considered the safest investment. It's like FDIC insurance.

John: Right.

Bridget: I bonds combine 9.62% with safety. You don't know what the stock market is going to make. A lot of times the stock market doesn't make 9.62% in a year.

John: That's right.

Bridget: And it's certainly not guaranteed. And even if it does, it goes up and down.

John: That risk and return is so interesting. We call it “directly correlated” in professional jargon. For example, by definition, the more return you expect to get, the higher risk. And over a long period of time, that's exactly right. There's no return without risk. In this case, however, we've got a little sliver of places here where you're getting better return because it's based on inflation, and inflation is a factual thing that gets calculated, so you're getting more return and yet taking no risk. This so rarely happens.

Bridget: Right.

John: This is a great place to be. It's safe. It's also guaranteed.

Bridget: Right. That’s number three.

John: If you buy an I bond today or tomorrow or anytime between now and October 31st, you're going to get for the first six months this 9.62% annualized rate. You know exactly what it's going to be, and it's not going to change. Where else can you get that? I relate it to clients as if you were to buy a CD. You have to leave it in there for a year. We'll talk about some of the reasons I bonds are not so hot—some of the drawbacks you have to think about.

But if you're going to buy a CD, you know exactly what the interest rate is, you know what you're going to get out on the other end. That's what we're talking about with I bonds. I bonds are FDIC insured, as you mentioned. Everybody knows what that means. No matter what happens, the government can print money, so you're going to get your money back at the end of the day and you're going to get this return; it's fully guaranteed.

It's hard to over describe how valuable it is to have a guarantee on this return for a safe investment that never goes down. It’s one of those things that I tell clients sounds too good to be true. You go, “Oh, what's going on here?” And maybe this is the unicorn or the exception of the rule, because most of the time, if it sounds too good to be true, we're going to find when we dig under the hood that it is, in fact, too good to be true. This one, however, is as plain as it gets.

Bridget: I recently went on a trip and there was a traveler who asked me for financial advice. This often happens to me. Sometimes people ask me for a hot tip, hearkening back to the days where there were hot stock tips (I guess there are still hot stock tips now, but that's not how I approach investing or personal finance or hot tips. I am a lot more measured than that). Anyway, now I tell people I bonds, which does not seem like a hot tip; it's not Tesla.

John: Exactly. Hot tip: buy a CD. No one says that. In this case, however, that's how it plays out.

Bridget: Yeah.

John: It's interesting. Where do these fit? We get people who ask that question. We talk a little bit about drawbacks—who shouldn't buy an I bond. And the one thing about I bonds is that you cannot get this money for a year. If you buy an I bond today, you've got to wait a year from now. It's not like, “Oh, you pay a penalty.” No, you cannot get this money. Here is an example. You are buying a house. You need to have cash, and you can't invest it in the stock market because, golly, if the stock market goes down 40%, you've got a problem.

You need to have $10,000 for a down payment. You can't have that be worth $6,000 when you’re making a house payment. So, geez, should you buy an I bond? Well, no. Even if you don't plan to buy a house for a year, what happens if the perfect house comes up in six months or in nine months and you don't have the money. In this case, you don’t know exactly what the future is going to bring, so I bonds are maybe not the right option for that situation.

Bridget: Well, it just depends on your timing. For example, sometimes a person says, “I'm planning on buying a house, but this is a long-term project, and I have $10,000, but it's going to be two years until I buy a house; I just know. I'm moving or I'm getting married or many other things, so I know it's not happening right now.” Then it's great.

John: Right. And that's a really great clarification. If there's any chance at all that it might happen sooner, then buying an I bond doesn't fit. Here's one example. We've got a client for whom buying an I bond does fit exactly. His daughter is getting married next summer. And everything is set. They’re graduating from college and getting married.

And we know he’s not going to have to spring for this wedding here in December or in February. It's going to be next June. Perfect example. We've got a year time frame. We don't want to put the money at risk. We know exactly what our interest rate is going to be. We're going to let it sit there for a year. That's an ideal spot for buying an I bond. There's no reason not to do that in that situation.

Bridget: There is one thing. The 9.62% is if you keep it in for five years. If you don't keep it in for five years—if you do take it out after one year—you don't get the whole 9.62%. There's some slight adjustment there.

John: You lose a little bit of interest. That's what the deal is.

Bridget: Yeah. Cry me a river.

John: Yeah, right.

Bridget: You're not getting the whole 9.62%.

John: Thanks for bringing that up, because I often skip over that sometimes. If you cash it out early, you lose a little bit of the interest.

Bridget: Right.

John: So that's a great point. And again, oh, geez, you're only getting 7% or 5% in today's interest rate environment. What are we talking about here?

Bridget: Right.

John: But it’s important to be aware of the adjustment, so that if you cash out in a year, you don’t go, “Wait a minute; I didn't get my 9.62%.” Well, yeah, but you got 7% or whatever the math is for you. That's a great point.

Bridget: Okay. To put the money in easily, $10,000 is your max. There're ways to contribute more, but in a very straightforward manner, $10,000 is the max you can do. So that's another limitation of I bonds.

John: Right. The other thing is the idea that you might need the money during the year. In this situation, to me anyway, it's an absolute no. Don't do it. For everybody else, as I look at it, I bonds are on the table. And I tell clients, “Listen, if you've got cash in the bank, you got money sitting in a checking account, you got your emergency reserves, I bonds are a great option, but don't replace your contribution to your 401K; it’s not your Roth IRA. But if you have cash sitting in the bank and you know you're not going to need some portion of it for a year, this is a no brainer.”

There's a segment of people, however, that I think—and I think you think the same on it, Bridget—who should consider not buying I bonds even if they could qualify. And that's because the only way you can buy I bonds is by going on to, filling out some forms, connecting your bank account, and then you got to keep track of different pieces of information if you buy more than one I bond—what you have and where to go. And it's not awesome technology.

Bridget: They’re the opposite of most things you sign up for with respect to updates. For so many things that you sign up for these days, you're immediately inundated with stuff; they send it in the mail, and you get five emails. Here's a statement and this, that, and the other thing. And this is the opposite of that. You get a confirmation email and then you never hear from them again.

John: Sometimes I say to myself, “I think I bought an I bond. I'm not sure what's going on.” And so, there's a hassle factor. And we were talking before we hit record and asking the question, would you drive across town to save money on gas? Well, it depends, if I'm saving a nickel on gas, no. If I'm saving $3 a gallon on gas, yeah, maybe I do that, but it sort of depends on how much effort you want to put in. And if you can put in $10,000, we are talking about something like $800 to $900 a year in interest. That's significant.

Bridget: That is if it stays at the same rate for the six months after these six months.

John: You're getting some significant return. If it takes me a couple of hours to set up my account—it shouldn't take that long—then pause to think. We've got some clients, however, who set up an account in ten minutes. But we've had other folks where they hit a snag and it takes 3 or 4 or 5 hours, and you go, “That's not worth $50.”

But if we're talking $1000 or $1500, you might say, “5 hours. That'd be a bummer, but that’s $300 an hour. Not bad. I'd make that investment.” So, you need to think about the time and how interested you are in tracking those things. And if you're a type of person where it's difficult to keep records and things get scattered now, it's not a panacea. You got to be aware of that. I just want people to be aware of that before they try to buy I bonds.

Bridget: Exactly. If you're the type of person who thinks, “I just like to keep things as simple as possible. Just tell me what to do or to sign,” then it's kind of tough. It's not quite that much of a no brainer.

John: Right. On the one hand, it's not rocket science—so complicated you can’t handle it—but on the other hand it's also not necessarily a super simple thing.

Bridget: And I think it helpful to understand the background of the whole thing. I heard that Al Gore came up with the idea for I bonds

John: Is that right after he started the Internet? 😊

Bridget: Yeah. They replaced old paper savings bonds, and the reason that the rate is high is because it's a law and it's tied to the inflation rate and the inflation rate happens to be high now. That's why it's so high now. So historically speaking, nobody has cared about these…I shouldn't say nobody, but the interest has been much lower in recent years.

It's actually ten times higher this than it was before the most recent rate increase, that is ten times higher in the last year than it has been for years. So the website kind of reflects this recent development, and the wait time, if you happen to have to call them, also reflects the incredible increase in rates. It seems like the I bond system is saying, “Wait. People are suddenly paying attention to me.”

John: It was really good technology when people had dial up Internet, but now it is a little bit behind the times. It works, however, and it's a great place to be if you fit the parameters. For many people, this is something they should be considering. And that's I think those are the reasons why we love I bonds.

Bridget: Exactly. So with that, I'm Bridget Sullivan Mermel. I've got a fee-only of financial planning practice in Chicago, Illinois.

John: And I'm John Scherer. I run a fee-only financial planning practice in Middleton, Wisconsin. And if you like what you hear on Friends Talk Financial Planning, Bridget and I are both members of the Alliance of Comprehensive Planners, a nationwide group of fee-only, tax focused financial advisers. And if you're interested in finding an ACP advisor in your area, check out

Bridget: And do us a favor and subscribe. If you subscribe to Friends Talk Financial Planning, it helps us with the YouTube algorithm and helps more people find our information. And with that, we'll see you next time.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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