Home Financial Well-Being Why Series I Savings Bonds are an Excellent Investment for Black Families

Why Series I Savings Bonds are an Excellent Investment for Black Families

One of the most important and complicated parts of investing is figuring out where to put your money. There are many options out there, which can sometimes make the right selection overwhelming! With inflation reaching four-decade highs, investors should seek higher-yielding and lower-risk assets, and I bonds tick the box. Series I savings bonds are bonds issued by the U.S. Treasury and backed by the government’s credit. Keep reading to learn more about why Series I bonds are a wise investment for you.

What are Series I Savings bonds?

I bonds are protected investments offered by the U.S. Treasury to guard against inflation-related value loss of your money. The Interest rates on I bonds are modified regularly to keep up with the ever-increasing inflation. This makes the current yield on I bonds far higher than any other government-guaranteed interest rate offered by any bank, brokerage, or other insured sources. Series I bonds are free from state income taxes, making them an even better low-risk option for investors who reside in high-tax states and localities.

How to calculate the applicable interest rate

I-bond interest rates are now 6.89% and will remain that way until April 2023, decreasing from the 9.62% rate in the six months leading up to October 2022. Investors can only purchase up to $10,000 worth of I bonds yearly through the TreasuryDirect website. Fortunately, tax returns allow investors to make a further $5,000 purchase, bringing the total yearly purchases per person to $15,000.

 I bonds offer a fixed interest rate for 30 years, which is paid twice a year. In addition, I bonds have an “inflation-adjusted rate,” which means your return goes up along with inflation.

Composite Interest rate

Interest rates are computed using composite rates based on fixed and inflation-adjusted rates. Although monthly interest payments are made on I bonds, you cannot access them until you redeem them.

The composite interest rate consists of two parts:

  • A fixed-rate
  • An inflation rate

The interest earned is added to the bond’s value twice a year. This implies that the principal amount you receive interest on grows every six months, allowing your money to compound over time.

You must hold the bond for at least five years to get the total interest. You cannot cash out an I bond until you have held it for one year. If you do so after that time (but before five years), you will lose three months of interest.

How to Buy and Redeem your Series I Savings bonds

I bonds are available for electronic purchase on the TreasuryDirect website. Since there is no secondary market for trading I bonds, you must exchange them for cash directly with the U.S. government rather than reselling them. They are non-transferable and non-negotiable for a year but can be cashed in at any time after that.

Bottom Line

I bonds are an excellent option for cautious investors looking for a low-risk investment to shield their money against inflation. I bonds are exempt from municipal and state income taxes but not federal ones. Nonetheless, they are tax-free if used to pay for higher education costs. This makes them especially suited for black families trying to save money for their children’s education. They are also suitable for most investment portfolios‘ fixed and cash portions.

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