Series I Bond Yield Drops from Record High — Why It’s Still a Wise Investment

U.S. Government Series I Bonds stock photo
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The record-high yield of 9.62% offered for Series I Savings Bonds from TreasuryDirect ended on Oct. 31. But if you missed out, fret not — you can still get a decent return on Series I bonds for the next six months.

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TreasuryDirect is now offering a Series I bond with a yield of 6.89% that will last through April 30, 2023. Although that is well below the previous yield, it still provides a solid return compared with other investment vehicles.

Stocks normally provide good returns, but these are not normal times. For example, the S&P 500 is down about 20% over the last year, MarketWatch reported.

Savings accounts are a safe place to put your money, but you won’t earn a big return on them. The average annual percentage yield for U.S. savings accounts was only 2.1% as of mid-October, according to the FDIC. Money market accounts perform a little better at an average of 2.3%. Even the best high-yield savings accounts don’t pay an APY much above 3%.

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The average APY on a 12-month CD is 7.1% — only slightly higher than what you would get with the a Series I bond. The current I bond’s yield of 6.89% is the third highest since Series I bonds were introduced in 1998, the AARP reported. Like all Treasury securities, the I bond is backed by the full faith and credit of the U.S. government.

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As GOBankingRates previously reported, Series I savings bonds are designed to protect you from inflation because you earn both a fixed rate of interest and a rate that changes with inflation. Interest on the bond is paid monthly and compounded semiannually, meaning that every six months, TreasuryDirect applies the bond’s interest rate to a new principal value. The new principal is the sum of the prior principal and the interest earned in the previous six months.

You can buy electronic I bonds via your TreasuryDirect account or paper I bonds with your IRS tax refund. Electronic I bonds are paid automatically when they mature. With paper I bonds, you need to submit the bond to cash it. You can buy up to $10,000 in electronic I bonds and up to $5,000 in paper I bonds.

The one catch is that you have to hold Series I bonds for five years to get the full amount of interest. You can cash them in at any time after the first year, but you’ll sacrifice three months of interest if you do so before the fifth year. You can hold them as long as 30 years if you want.

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Meanwhile, yields for Treasury bills are expected to rise as the Federal Reserve hikes interest rates in an effort to tame inflation. A one-year T-bill yielded 4.66% on Nov. 1, according to the AARP, while a six-month T-bill yielded 4.58%. A year ago, they yielded less than 1%. Like I Bonds, interest on T-bills is not subject to state and local taxes.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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