Is it Time for I-Bonds Again?

Last week I transferred some cash from my online bank account, where I can get a decent interest rate, to my checking account, which has zero interest rate but is connected to my Treasury Direct account. Purpose - to buy some I-Bonds.

Let's review I-Bonds: U.S Government savings bond, the "I" stands for inflation protected. Two interest rates, a fixed rate which stays for the life of the bond and an inflation rate which changes every six months. You add the two rates together. The I-Bond will stay even or exceed the rate of inflation. I-Bonds are different from regular bonds in that the principal, your original investment, cannot lose value. They are long-term investments - you cannot withdraw the money until one year, and there is a three-month interest penalty if withdrawn in less than five years. Income tax on the interest is deferred until cashed in, and you pay no state taxes on that interest.

As a Money Coach, I see a lot of different reasons to hold I-Bonds. I put them in a safe, inflation-protected income asset allocation category. I-Bonds can be used to reduce exposure to the risks of the stock market. Personally, I use them as my emergency medical and dental fund and a place for Long Term Care expense should I ever need it. I-Bonds can be a place for part of your emergency fund, a place that is accessible but also one that earns interest. For some I recommend I-Bonds as a repository for college money for the grandkids, because grandma and grandpa still control the money.

The current rate, which started May 1, is 4.6% which compares favorably to 0.74% for the previous six months. Unfortunately, there still is no fixed rate which stays for the life of the bond. But 4.6% for cash is certainly a good deal at this time.

I buy I-Bonds both online and at the bank. The website is TreasuryDirect.gov. You set up an electronic link between Treasury Direct and your bank account. You buy the bond and the Treasury takes the money out; you sell the bond and the Treasury puts the money back into your account. Because I-Bonds are such a good deal, you can only buy $5000 at Treasury Direct each calendar year plus $5000 from your local bank or credit union.

My advice - consider I-Bonds as part of your investment portfolio.

Other articles by this contributor:

Should I Buy a Home Now?

Savings 101 - She's 20 and Saves $500 a Month

How Can I Make Extra Money By Working at Home