Personal Finance

A Guaranteed Way to Dramatically Boost Returns on Your Cash

W. Scott McGill /

As interest rates have fallen, already-low savings account rates have gotten downright puny. If you are tired of getting little for your money, Uncle Sam offers an option that currently can push returns considerably higher.

If you buy a Series I Savings Bond between now and the end of October 2021, you will earn interest on the bond at an annual rate of 3.54%. Such returns trounce the payout of even the highest-yielding savings accounts right now.

That 3.54% rate is good for the first six months you own the bonds. That’s because the rates on Series I Savings Bonds, also known as “I bonds,” can fluctuate every six months on account of inflation.

But before you move money away from the bank and over to federal government bonds, be aware of three important catches with Series I Savings Bonds:

  • You typically can purchase only $10,000 in such bonds from each year.
  • You cannot cash out your bonds within the first 12 months that you hold them.
  • Bonds held for less than five years are subject to a three-month interest penalty when cashed out.

Each year, the federal government sets rates for savings bonds on May 1 and Nov. 1. Interest accrues monthly and compounds semiannually.

Rates on Series I Savings Bonds are determined by a combination of a fixed rate — which applies for the 30-year life of the bond — and a semiannual inflation rate.

In May, the U.S. Department of the Treasury introduced its new six-month rate on I bonds — a fixed rate of 0% and a 3.54% annualized rate of inflation, as measured by the Consumer Price Index for all Urban Consumers.

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Should you take the plunge?

The current 3.54% return on Series I Savings Bonds blows even the best savings account rates — which are about 0.5% now — out of the water.

However, remember that you cannot touch the money for at least 12 months. Also, pulling money out during the first five years will result in a three-month interest penalty. So, if you need to cash out soon, you will pay for the privilege.

Also, keep in mind that you are limited to buying $10,000 per year in electronic Series I Savings Bonds via, although you also can buy up to $5,000 per year in paper I bonds using your federal income tax refund.

So, the benefit of purchasing Series I Savings Bonds has some important limits. Still, it can be a no-brainer for many folks. As Money Talks News founder Stacy Johnson has written, the benefits of inflation-protected bonds include:

  • “The interest accrues tax-deferred. That is, you don’t pay taxes on it until you cash the bond in.
  • There’s no risk, since they’re issued by Uncle Sam.
  • They adjust for inflation, so if you hold a bond, your interest should rise if inflation rises.”

Unsure if you have the right mix of savings and investments? Stop by Money Talks News’ Solutions Center and find a fee-only financial planner.

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