By David Enna, Tipswatch.com
U.S. Series I Savings Bonds are one of the nation’s most talked-about investments of 2021, especially now that their inflation-adjusted interest rate has surged to 7.12% at the November 1 reset. Glowing articles have been popping up in Barron’s, Bloomberg, the Wall Street Journal, CNBC, USA Today, and on and on.
And now, as the year draws to a close, there is a possibility to lock down — in a two-week period — $20,000 in I Bonds (or $40,000 for a couple) and get 7.12% annualized for a full six months on the entire investment. The Treasury sets a $10,000 per person per calendar year limit on I Bond purchases, but the 2021 purchase cap ends on Dec. 31 and the 2022 cap launches on Jan. 1.
So here you go, a chance to double up on a very attractive interest rate. But you will need to act fast.
What is an I Bond?
If you are totally new to I Bonds, you can read my “Q&A on I Bonds,” which covers all of the pluses and minuses of this investment. But briefly … An I Bond is a U.S. government security that earns interest based on combining a fixed rate and an inflation-adjusted rate.
- The fixed rate will never change. So if you bought an I Bond in 2014 with a fixed rate of 0.2%, it will continue to have a 0.2% fixed rate for the life of the bond. Purchases through April 30, 2022, will have a fixed rate of 0.0%, which means they will simply track official U.S. inflation over time.
- The inflation-adjusted rate (often called the variable rate) changes each six months to reflect the running rate of inflation. That rate is currently set at 7.12%, annualized, for six months. It will adjust again on May 1, 2022, for all I Bonds, no matter when they were purchased. (However, the effective start date of the new interest rate will vary depending on the month you bought the I Bond.)
I Bonds are the most conservative and most safe of all investments. Your principal is 99.9999999% safe and it will never decline, ever. If inflation falls to below zero, the inflation-adjusted rate will fall to zero, but not below zero.
The value of building and holding a stockpile of I Bonds has been demonstrated in 2021, with inflation surging to an annual rate of 6.8% in November. As U.S. inflation rises, the return on I Bonds increases, and the money compounds tax deferred until you redeem the I Bonds.
The purchase limit
Investments are limited to $10,000 per person per calendar year for electronic I Bonds held at TreasuryDirect. There is also the option to get $5,000 a year in paper I Bonds in lieu of a federal tax refund. Some investors find this amount too small to make a difference in their asset allocation. However, an investor using multi-year purchases can build a substantial stake in I Bonds.
And that’s why this last week in December is so important. This week, you can lock down $10,000 with a 7.12% return for the first six months and then next week, do it again. That is a total of $20,000 for a single person, and $40,000 for a couple. For most people, that is a significant investment, especially for use as part of an emergency fund.
After six months for each investment, on June 1 for the I Bonds bought in December and July 1 for the I Bonds bought in January, the inflation-adjusted variable rate will be reset. It’s impossible to say what that new rate will be, but I think it’s likely to be in a range of anywhere from 4% to 7% … also very attractive.
I Bonds have to be held a year before they can be redeemed and there is a penalty of the last three months of interest for I Bonds held less than 5 years. But even with that penalty, any purchase of I Bonds in December and January will be guaranteed to return at least 3.56% over one year. Compare that to an insured bank CD paying 0.60%, or the 1-year Treasury paying 0.33%. It’s no wonder I Bonds are a very popular investment at the moment.
Want to do this? Get started TODAY
To buy I Bonds, you need to have an account at TreasuryDirect. If you already have an account, no problem. Just log in and make the purchase. But if you don’t have an account, time is running out. You need to place your I Bond order today, Dec. 28 (preferably) or tomorrow (last shot), to ensure that your purchase will be registered in December 2021. A purchase made Thursday might be OK, but it’s getting risky.
A lot of readers don’t like TreasuryDirect, which can be a bit clunky. But the process of buying and redeeming I Bonds at TreasuryDirect works well. First you need to open an account, and I wrote a guide to walk you through the basics: Ready to open a TreasuryDirect account? Here are some tips.
When you set up the account, you will be linking a bank or brokerage account to TreasuryDirect. Then to buy I Bonds, you simply log into TreasuryDirect, set the purchase amount and date, and the purchase will be made. You can purchase I Bonds near the end of a month and get credit for a full month of interest. TreasuryDirect makes timing the purchase easy.
Couples need two separate TreasuryDirect accounts, so allow time for that if you are using this strategy.
Then … buy in January? Or later?
I’ll be writing a guide to I Bond purchases in 2022 next month, but right now I am thinking that a purchase in January will be fine. In reality purchasing any time through April 30, 2022, will ensure six months of the 7.12% rate. So there won’t be a similar rush to buy in January.
But if the idea of a “double dip” purchase of I Bonds appeals to you — along with a super-attractive interest rate over the next year — you need to get the 2021 purchase done … RIGHT NOW.
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Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear.
David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. The investments he discusses can purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.
Treasury Inflation-Protected Securities 
I have not received $5,000 ibond purchased with 2021 refund. What should I do?
I haven’t used this method so I can’t say how long of a delay is normal. Other readers have suggested a month. The IRS could be overwhelmed. You will be fine as long as the I Bonds are issued with a March or April issue date.
Thanks again for another great IBond article.
Not sure the animosity with the poster above. You don’t like the investment don’t buy it. I give you credit for allowing it to be posted. You’re giving out free information and not charging. Guess he really hates IBonds, lol.
Happy New Year and keep the IBond articles coming!
Good luck trying to purchase them . Web site keeps showing TREASURY DIRECT UNAVAILABLE FOR THE PAST 2 DAYS
Interesting. I was able to log in on Tuesday, the day I wrote this article. And I am able to log in this morning, too.
Suggested to buy in March 2022. That way you can ‘park’ your $ in a fund that MAY earn more than the 3.56% BEFORE you purchase the Bonds to add to the overall return. Is that a good recommend?
Actually, you can wait all the way until late April to purchase and still get the 7.12% for a full six months, and then whatever the next rate is for the next six months. The ‘parking’ premise assumes you have a way to make a good return while you wait. If that is in the stock market … you face the risks of the stock market while you wait.
David,
Seems to me that a couple could actually buy $30K in I bonds over the next month if they make sure to overpay their 2021 income taxes by $10K (make a fourth quarter estimated payment if needed) and use the resulting refund to each buy $5K in paper I bonds each. If you don’t want to hold the paper I bonds you can then convert them to electronic and hold them in Treasury Direct. Any thoughts on this idea?
I believe the $5,000 in paper I Bonds will be limited to one tax return, so a couple filing jointly could only receive $5,000, not $10,000.
Looked it up on the instructions for Form 8888 and you are correct that the limit is $5,000 per tax return.
Totally misleading. You have the possibility of making 7.12% annualized if the renewal rate stays high in 6 months, which it wont. You are only guaranteed 3.6% for 6 months. Its 10k per tin number. A couple has to have two accounts or more! Also the most TD allows is two names on the account not good for estate planning. More problems then it is worth! Your locked in for 5 yrs of possible making nothing without paying to get out.
Hold on there! I repeatedly say in the article that the 7.12% is for six months, and the rate will reset after six months, but you are guaranteed to get 3.56% after one year, even with a three-month penalty. I also note the new rate is “likely to be in a range of anywhere from 4% to 7%.” I also note that a couple must have two accounts.
Problem is you set the big expectations 7.12%, couple (sizzle) then you put it (steak) details in the wordy print. Cuz it takes alot of words to explain the first sentence. Zero financing commercial style.
I put the deal in simple english. Though I probably would not sell many subscriptions but I know what I am buying.
Donald, that is absurd. I always try to lay out the pluses and minuses of TIPS and I Bonds. I am not selling sizzle. However, 7.12% annualized for six months is very attractive in a world of 0.05% interest rates. That needs no sizzle.
I didn’t have a problem understanding this!
“Your locked in for 5 yrs of possible making nothing without paying to get out.”
The way it looks to me is if I buy an I Bond with the current fixed rate of 0%, and redeem before 5 years during a time when the most recent 3 months of variable rate interest has also been 0%, the penalty would be zero.
Oh, so now the major media have noticed I bonds? I have been investing in them since 1999 as superior to TIPS in some ways.
David should get an award from the Treasury for his efforts, because virtually all investment advisors have ignored I bonds for decades ( nothing in it for them).
Happy New Year, David
Thanks Len! And thanks for being a loyal reader.
I am so happy that we purchased IBonds in 2001 as part of our emergency and travel fund. With a 3% fixed rate we have received an annual interest of 4 to 7 percent. I find that it takes about 12 years to double, slower than stocks but so much more reliable and a nice buffer for dividend paying stocks and REITS. We have nearly half left after working and traveling about the world upon our retirement 30 years ago. Another 12 years to go before they stop paying interest. By then I’ll be 97.
David, in the early years, I Bonds were ridiculously attractive. Bob Brinker, host of a financial talk show on the radio, talked about them a lot, and my wife and I bought them in March 2001 (fixed rate 3.4%) and October 2001 (fixed rate 3%). We’ve held them. They are “little treasures” and will be returning more than 10% for six months.
We got rate of 4% fixed rate. With hyperinflation we might see that again! Unless you got a trust, these do not play well for a total estate plan.
I don’t think you fully grasp I bonds. Hyperinflation wouldn’t affect the fixed rate, only the variable inflation component. Also, the fixed rate never got up to 4%.
Arthur, you are correct on the fixed rate. The highest I Bond fixed rate in history was 3.6% for the period from May to October 2000. On hyperinflation … it’s logical that nominal interest rates would have to rise substantially under that scenario, and the I Bond’s fixed rate could also climb. But that’s not certain. Hope that we never see this.
Thank you Mr. Enna for all your work and a very happy new year to you.
Thank you David Enna for contributions on IBonds over the past decade or more. When a friend told me about I Bonds in 2001, I had never heard of them. We purchased $60,000 at the time ($30,000 each) and on hindsight
wish we had purchased another $60,000 worth the next year. As our travel and emergency fund, it was great not to be worried about the value going up or down. After working and traveling around the world for many years after official retirement living primarily on Social Security and a few small investments, followed by full time RVing for seven years, I am amazed we still have $80,000 left. We will be 97 when the interest income comes to a halt. That gives us another 12 years. No, we didn’t save $2,000,000 like nearly every investment advisor suggests, but we did buy those IBonds. They are like gold! When we need money, I go to work for three months. Jobs are plentiful around the country at $15 an hour. It’s always fun to learn new skills and work with young people at Amazon or Costco. We live on a small golf course. Even too much golf or fishing gets tiresome after a while. Love our I Bonds!!!