Series I Bonds, Revisited

April 1, 2024

Did you take my advice and buy series I bonds between May of 2022 and November of 2022 and earn 9.62% for the first six months and then 6.48% for the second 6 months? Great trade! But itʼs time to reevaluate the fixed income landscape.

These Series I bonds purchased between May and November of 2022 now only yield 3.94%. This yield is made up of a 0% fixed rate plus an inflation rate of 3.94%. Compare that to a yield of 5.27% for newly issued Series I bonds made up of a fixed rate of 1.3% plus inflation of 3.97%. In other words, the old Series I bonds have a “real return”, or return adjusted for inflation, of 0% and the new ones have a real return of 1.3%. A plain vanilla 3 month Treasury bill without any liquidity restrictions is currently yielding between 5.3 and 5.4%.

Powell and the Fed seem confident they will be able to successfully bring inflation down to the 2% target without tipping the economy into recession, so holding a Series I bond that pays only inflation is essentially fighting the Fed, which typically doesnʼt bode well for investments. Depending on your unique situation, it may be time to cash in and move the money to more productive investments.

Saving for college or a disabled family member? You may be able to avoid paying income tax on the interest! Schedule a meeting to find out: calendly.com/komichcapital/30min

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