Buy I Bonds

Update 2023: Due to falling inflation (and higher bank interest rates) I Bonds no longer present an attractive investment. I do not recommend purchasing I Bonds at this time.

I've decided to over this free advice because it's a really, really good deal and more people need to learn about it. I am not a financial advisor. Please do your own research before investing.

The average U.S. savings account pays interest of less than 0.1%. Even "high yield" savings accounts pay only 0.5%.

However, the U.S. government runs a program called "I Bonds" that are indexed to inflation. American citizens can buy up to $10,000 per person, per year. These bonds currently pay 9.62% interest.

There is no catch. The U.S. government loses massive amounts of money on these bonds. It is a gift from the government to people who are smart enough to take advantage of the program.

However, there are a few important things to note:

• The minimum holding period for I Bonds is one year.
• If you withdraw before 5 years you will lose 3 months of interest. So if you withdrew after a year, you would "only" get 7.2% interest.
• The interest rate resets every six months based on inflation.
• The interest grows tax free. However, when you take out the bonds, you will have to pay tax on the interest accrued, just like you pay tax on other bonds.

It is theoretically possible to buy up to $35,000 per person per year. You can buy $10,000 for yourself, $10,000 for a trust, and $10,000 for a business, plus you can buy an additional $5,000 with your tax return. It might be a lot of work to set this up.

Yes. I bought $10,000 in December and another $10,000 in January.

The only way to buy them is from the website of the U.S. Treasury.

https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm

Yes. The government offers many different bonds. The ones you want are Series I bonds. The other bonds are much, much worse. I Bonds are not TIPS. Do not get them confused.