What are I-Bonds?

To answer your first question; I-Bonds are not a cool tech corporate bond being issued by Apple. 🤪

I-Bonds, more formally known as Series I Savings Bonds, are a type of savings bond issued by the US Treasury that involve inflation protection. Bonds, in general, are considered a hedge against inflation. What makes I-Bonds unique is that they earn interest through a combination of a fixed rate and a variable inflation rate. Like most government bonds, these are considered a very low risk investment.

With I-Bonds you’ll earn fixed interest for the life of the bond which can be up to 30 years (generally around 1-2%). On top of that you’ll earn a variable interest rate which is adjusted twice per year based on changes in the Consumer Price Index (CPI). Since the CPI is the tool used to measure inflation, I-Bonds have better returns during high inflationary periods.

If risk avoidance is the name of the game, I-Bonds are for you! As with other federally issued government bonds, I-Bonds are backed by the full faith and credit of the United States government. Chances of this bond going into default are virtually non-existent. You can rest assured that your investment is in a safe and stable environment!

The variable interest aspect of this bond is a direct hedge against inflation. As we enter high inflationary climates, the payout of this bond will also rise. Unfortunately, that means low inflation will reduce your return. That said, the investment will always pay the fixed rate, and the variable rate will never go below 0% even during deflationary periods. In essence, your principal investment has almost no risk of losing buying power throughout the life of the bond!

I-Bonds also offer some tax advantages. Interest earned on these are generally exempt from state and local taxes. On top of that, it might be completely tax-exempt if the earnings are utilized for higher education! You’ll want to consult a CPA or tax professional to confirm, the rules here might vary based on household income and geographic location.

Pros:

• One of the lowest risk investment that can be made
• Built in protection from inflation
• Interest may be exempt from state and local taxes
• Interest may be completely tax-free if spent on higher education

Generally speaking, with low risk comes low reward. As of the date of this writing (4/5/25), I-Bonds are showing a rate of 3.11%. That’s including the fixed interest rate of 1.2% 🤮. Naturally, that number was a little higher last year with all that inflation, but the returns here are minimal. Even my high yield savings account is offering 4%!

Another drawback is that I-Bonds must be held a minimum of one year. Plus, after that, if the I-Bond is redeemed before 5 years, the investor must forfeit the previous 3 months of interest as penalty. The return on this investment will not be seen until they are redeemed, so to be properly optimized any funds in an I-Bond are locked up for 5 years or longer.

The maximum someone can put into an I-Bond in any given year is $10,000. Also, the purchase of them can only be done through treasurydirect.gov, not through a brokerage account. $10k per year may sound like a big investment, but this can prove to be a hinderance for those in the wealth preservation phase looking to shift investment allocations to a more conservative setting. Not only that, but it also gets difficult to track investments that are scattered throughout different platforms.

Cons:

• Comparatively low returns
• Lack of liquidity
• Investment amount cap (per person, per year)
• Cannot be bought/tracked through current brokerage

I personally don’t have I-Bonds in my future plans. Generally speaking, the Savvy Solo in the wealth building phase shouldn’t be looking much into bonds at all; a larger allocation in stocks will prove to be more fruitful down the line. Yes, safety feels nice, but you’ll be missing out on the compound growth that a VTSAX and Chill (or similar) strat can have for you. We call that opportunity costs, and the cost here can be pretty severe! 😬

For the Savvy Solos in the wealth preservation stage, are you really looking to lock up your funds for 5+ years? These are your golden years! The years to have fun! It might make more sense to put your conservative investments in a more liquid vehicle. Also, in the name of simplicity, I’d rather not have my investments scattered around different platforms during retirement. Keep your investments simple and your life exciting!

The tax breaks might sound nice, but certain municipal bonds out there offer 100% tax free better returns and you can spend on whatever you like! Again, consult a CPA or tax professional, I am not a tax expert.

Overall, I like the idea of having a direct hedge against inflation like this; but there are better investment options to further grow your wealth. You’ll want to consult a fiduciary CFP or other financial professional to help make the large investment decisions in life, but I’m willing to bet most of them aren’t pushing I-Bonds! 😂

I-Bonds create a unique investment opportunity as a direct hedge against inflation. Given the fixed and variable interest rate, a Savvy Solo can rest assured that their investment will not lose buying power over the life of the bond. These tend to get more popular during high inflationary environments, and inevitably an increase in people looking to get rid of them when inflation evens out. 🤪

If, even after reading all this, the idea of I-Bonds still intrigues you, I would suggest instead to consider a CD Ladder. You’ll tend to get a better return and better access to your funds with this strat. Again, consult a fiduciary CFP or other financial professional before making large financial decisions, they can sometimes help more than you know!

Stay classy Solos! ✌️