One of the biggest concerns currently surrounding markets is inflation and how to defend against it. The search for yield is intense! The Consumer Price Index on all items shows inflation increasing 6% year-over-year, not to mention checking/savings accounts, and most sovereign bonds yield below 2%. One tool that can be effective for your savings plan is the Series I Savings Bond.
For weekly insights, follow The Welch Group every Tuesday morning on the WBRC Fox 6 Money Tuesday segment.
The Series I Savings Bond is a low-risk savings vehicle that earns a fixed rate of interest along with a variable rate based on the Consumer Price Index. The variable rate adjusts every six months based on a Consumer Price Index calculation. The bond earns interest over a 30-year period unless cashed in before. Like any investment, the Series I Bond is not perfect and comes with certain limitations. Below are a few pros and cons of the Series I Bond to help you determine if they are a good fit for you:
Pros of Series I Bonds:
- Currently yielding 7.12% annually, or 0.593% per month, through April 2022
- Tax-Free at State level
- Tax-Free at Federal level if used for Qualifying Education
- Tax assessed when the bond reaches maturity or at redemption
Cons of Series I Bonds:
- Interest rate is variable
- Must Own the bonds for at least one year (Think lack of liquidity here!!)
- If redeemed before five years, you lose the previous three months interest
- Taxed at Federal level if not used for Qualifying Education
- Minimum and Maximum purchase requirements (See Below)
- Difficult to purchase within IRA’s
How to Purchase
If you are interested in purchasing a Series I Bond, there are two ways to do so. The first is by establishing an account through the TreasuryDirect.gov website and then purchasing electronically. There is a $25 minimum purchase requirement and a purchase limitation of $10,000 annually if you are buying electronically. The second way is to purchase paper bonds via your Income Tax Refund (Click here for more details). Again, there is a $50 purchase requirement and a purchase limitation of $5,000 annually if purchasing paper bonds.
As you can see, the Series I Bond is a helpful tool to combat inflation’s negative effects. Just keep in mind this tool is not perfect and may not fit your overall plan. Make sure to consult your financial advisor to see if these options make sense for you.
Happy Thanksgiving, everyone!
Marshall Clay CFP, J.D., is a Partner and Senior Advisor at The Welch Group, LLC, which specializes in providing Fee-Only investment management and financial advice to families throughout the United States. Marshall is a graduate of the United States Military Academy in West Point, New York, the Cumberland School of Law in Birmingham, Alabama, and is a CERTIFIED FINANCIAL PLANNER™. In addition, Marshall is a frequent guest on local television stations as an expert on various financial planning matters.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by The Welch Group, LLC –(“Welch”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Welch. Please remember that if you are a Welch client, it remains your responsibility to advise Welch, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Welch is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Welch’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.welchgroup.com. Please Note: Welch does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Welch’s website or blog or incorporated herein, and takes no responsibility.