The Series I Savings Bond has been around since 1998. I don’t recall hearing about the Series I, or I bond, until the fall of 2021 when inflation in the United States really started to take off. The United States Department of Treasury offers Series I bonds with a yield that is based on inflation.

Historically, at least since the inception of the I bond, inflation in the United States has been low. Low inflation results in low yields from the bonds. However, a quick glance at the Series I Savings Bond earnings rates shows that the bond has historically performed better than you might see from a CD.

The current yield is 7.12% and is valid until the end of April 2022. The rate is expected to increase to 9.62% for bonds sold between May and November 2022. These rates are very tempting, given the country is in the midst of the highest inflation in 41 years.

Is the Series I Bond Right for me?

The high returns on the I bond have drawn the attention of investors across the United States. There are a number of items to consider to determine if the Series I bond fits in your financial strategy.

  1. The minimum term of ownership is one year. You forfeit the most recent three months of interest if you sell the bond before the fifth year of ownership.
  2. Interest rates on the bonds are recalculated every six months based on a fixed rate and the semiannual inflation rate.
  3. You can purchase up to $10,000 of I bonds in a calendar year, and you can apply up to $5,000 of your tax return to I bonds, making the maximum individual contribution of $15,000 per year.
  4. You can gift an I bond and delay delivery to the recipient to a future year. Using this method, an individual can earn interest on bonds exceeding the annual limit. However, the bond counts against that year’s limit when the gift is delivered.

The Series I bond is a clear winner if you are a conservative investor and regularly invest in CDs. A good one-year rate for a CD is 1.25%. There is no comparison even with forfeiting three months of redemption on the Series I. The I bond wins by miles.

I’m in the accumulation phase — Is Series I right for me?

This scenario is exactly where I sit. I’m not drawing down my savings, and I’m aggressively investing in my future. My portfolio is based on equity ETFs, and for the most part, I have steered clear of bonds.

The S&P 500 is down 8.4% so far in 2022. If you follow the advice of J. L. Collins in his book The Simple Path to Wealth, selling in a down market is the wrong time to sell.

If you are working hard to accumulate wealth, you probably have an emergency fund of three to six months, investments in retirement accounts, and investments in brokerage accounts. It’s less likely that you are sitting on cash that is not invested in the market that you can afford to sit on for a minimum of 12 months.

This situation is precisely where I find myself. I’m very tempted by the high rates offered by the Series I bond. However, I’m unwilling to sell equities in a down market to free up cash to purchase the I bond.

Ultimately, I have faith in the long-term outlook of the market. Inflation is concerning, but my focus is on the future, not today’s market noise. My strategy continues to rely on investments in ETFs for the long haul.

In fact, I would say that I’m even more motivated to continue to buy in a down market, as lower prices mean more shares for the same dollar investment.

I’m in the drawdown phase — Is Series I right for me?

If you are drawing down your investments and subscribe to the bucket system, the Series I bonds may fit well in your strategy, at least while inflation is high.

Here are the three buckets for reference:

  • Bucket 1 — The next 6 to 12 months. Likely cash.
  • Bucket 2 — One to three years. Lower risk investments to buffer you from market volatility and avoid selling equities in a down market.
  • Bucket 3 — Long-term equity investments, including retirement accounts, brokerage, etc.

The sky-high returns from the Series I bond could compliment Bucket 2 very nicely in this scenario. Future inflation is unknown, but it seems pretty clear that inflation isn’t likely to recover to normal levels in the next six months. The Series I bond can help protect your one to three-year bucket from inflation. The annual contribution limits reduce the effectiveness, but some protection is better than none.

I want to learn more about the Series I Bonds

If you want to learn more about the Series I bonds, Randy Runtsch wrote an article, How to Buy Series I US Savings Bonds to Protect Against Inflation, in August 2021 that covers the bonds well.

I’ve never been focused on bonds in the past because I’ve been focused on aggressively accumulating wealth. The current state of inflation in the US is scary and it’s good to learn that the Series I bond exists and can be leveraged to help protect against inflation.

I don’t believe that the Series I bond is a fit for my current investment strategy, even at 9.62%, but it might be a fit for your situation. The best advice I can give is to look at your situation closely and determine if the Series I bond would work for you. These rates are too high to ignore.