I-Bonds

By far the safest place to save is with I-Bonds from the U.S. Treasury. They are the perfect vehicle to stash cash for emergencies, a new car, a down payment on a home, etc.

So why is this better than a savings account, CD, or money market fund with your local bank or brokerage? First and foremost, Series I-Bonds are currently paying 1.38%. While it doesn’t sound like much it is triple the rate most banks pay on their Variable Rate 1 year CD. But the real beauty lies in their flexibility and safety.

1) I-Bonds are safer than FDIC insured bank deposits because they are fully backed by the U.S. Treasury for principal and interest without limitation. FDIC insured banks accounts are only insured up to $250,000 and Money Market Mutual Funds (MMF) are not insured at all. In fact, you can loose money in an MMF.

2) I-Bonds are inflation protected – interests rates are recalculated twice a year. As interest rates rise, so will your earnings. Interest rates are at their lowest point in 30 years. So, while interest rates could fall further there isn’t much room left to fall.

3) I-Bond earnings compound tax free until cashed out and they earn interest for up to 30 years.

4) I-Bonds have no fees or expenses.

5) You can assign beneficiaries to your I-Bonds. This can be very useful for estate planning.

9) Unlike a Bond Fund there is no capital risk when interest rates rise.

10) I-Bonds can be purchased for as little as $25

Cons:

1) You can only purchase $10k per year per social security number. (If you buy one for your child or parent and name yourself as beneficiary it does not count toward your purchase limit – This is the estate planning benefit of I-Bonds)

2) Cannot redeem for 1 year

3) If redeemed between 1 and 5 years you forfeit 3 months of interest – a minor hit.

4) No capital gains if rates go down but no capital loss if
rates go up.

Series-I-U.S.-Savings-Bonds

For more info go to: U.S. Treasury Direct