Why Invest in Series I Bonds?

Investing in series I bonds has become popular in recent years. Savings bonds have been around for a long time and are still very popular today. However, the series I bond was started in the late 1990s as a slightly different type of bond. Using these bonds as an investment vehicle can provide you with several advantages over traditional investment tools. If you are considering whether or not to invest in series I bonds, here are a few things that you may want to consider.

Protect against Inflation

The main reason that the United States government invented series I bonds was to help investors protect themselves against inflation.

When you buy a series I bond, you are getting two different rates of return. You get a fixed rate that stays the same at all times. Then you get another rate that is dependent on inflation in the economy. They will look at the consumer price index and determine exactly how much inflation has taken place. Then they adjust the second interest rate accordingly. They make these adjustments twice a year, in May and November.

With this type of investment, you know that your dollars are going to be taken care of against inflation. Not all investments can claim that and actually mean what they say.

Government Backed

A great feature about going with a series I bond is that it is backed by the government. You know that as long as the government is around when you decide to cash in the bond, you will be able to get paid on it. This provides a level of safety that other investments just cannot match. 

You get a guaranteed interest rate that is paid until maturity. These particular bonds will stop earning interest after 30 years from the issue date. Up until that point, you are guaranteed the amount that is owed to you from the government if you decide to cash it in. 

Liquidity

While bonds are thought of as more long-term investments, they still do give you some flexibility and liquidity. If you need to cash a bond in, you can do so whenever you want. In order to cash in your bond, you simply take it down to the local bank. They will calculate the value for you and give you the amount in cash on the spot. You will want to make sure that you do not cash it in before it is absolutely necessary, though, because there could be some fees involved. If you cash it in within the first 5 years, you will lose some of the interest that is owed to you. 

 

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