Caution warranted when considering a year-end purchase of Series I Bonds 

Recent economic indicators have some investors seeking the guaranteed protection against inflation offered by the Treasury Department’s Series I savings bonds.  These instruments, offering a fixed rate of return plus an inflation rate, reset every six months and interest can be earned on the bond for 30 years.  For the next six months, the Treasury Department has set the inflationary rate at 7.12%—about 5.6 percentage points more than you can currently receive from 10-year Treasury bonds.

Series I bonds may look attractive right now, but investors should be warned that the investment isn’t without risk.  Every six months the I bond inflation rate resets, and investors may eventually find they could get a better return elsewhere and choose to sell their bond holdings.  However, I bonds sold in the first five years forfeit all interest accumulated, effectively locking investors in for that time period even as economic conditions change.

Further, any individual can only buy a maximum of $10,000 of Series I bonds per year through www.TreasuryDirect.gov, making this a limited opportunity when considering the size of a typical retirement portfolio. 

For investors seeking natural inflation hedges, stocks and Treasury Inflation-Protected Securities (TIPS) may be more effective places to invest larger amounts of capital.  For more information, contact your Cranbrook Wealth investment professional.