Suze Orman has long been a fan of I bonds.
Financial guru Suze Orman has been singing the praises of I bonds for years. Although she says they may not be as attractive as they used to be and there are other alternatives, she believes they are still a great investment. But what exactly are I bonds? And why should you consider investing in them? Let's take a look at the ins and outs of these unique savings bonds to see if they're right for you.
What is an I bond?
I bonds are a type of savings bond issued by the U.S. government. I bonds protect you from inflation and are intended to provide a safe, low-risk investment option for individuals. I bonds earn interest for up to 30 years, and the interest is exempt from state and local taxes. The interest is also tax-deferred until you take a withdrawal. The interest rate on I bonds has two components: a fixed rate of return and a variable rate of return that is adjusted for inflation every six months.
The current rate for an I bond issued from November 2022 through April 2023 is 6.89%, which is a step down from the 9.62% offered from May 1 and Nov. 1 of 2022. The fixed rate applies to all I bonds sold during the six-month period. Currently, the fixed rate is 0.40%. The semi-annual (half year) inflation rate is based on the Consumer Price Index and is currently 3.24%. The combined rate is called the "composite rate" or "earnings rate." The only place to buy I bonds is through TreasuryDirect.gov. You cannot purchase them through a typical brokerage firm.
Read more: unlock best-in-class perks with one of these brokerage accounts
The benefits of investing in I bonds
Suze Orman has long been a fan of these unique savings bonds because they offer so many benefits over other types of investments. For starters, they offer a guaranteed return on your investment, unlike stocks or mutual funds, which may go up or down over time. They have a low minimum purchase amount ($25) which makes them accessible to almost everyone who wants to invest their money wisely.
In addition, because the interest earned from them is tax-deferred until you cash them in (or until 30 years have passed), they can be a great way to save for retirement without having to worry about taxes eating away at your returns each year. Finally, since they are backed by the U.S. government, there's virtually no risk involved. So even if the stock market takes a dive or another economic crisis hits our shores, your money will still be safe with an I bond.
The downsides of I bonds
While I bonds are currently returning close to 7%, the money is locked up for the very first year and can't be touched. In years two through five, the penalty to liquidate is three months' worth of interest. And after five years, you can take your money out any time you want. In a recent podcast episode, Orman stated that I bonds are still a great investment, but rates can go down just as fast as they went up. Since inflation can go up or down, deflation can bring the combined rate down below the fixed rate (as long as the fixed rate is not zero).
Because interest rates have skyrocketed, Orman says a CD or Treasury Bills can offer rates just as high without having to lock in your money for a year. For example, a 6-month CD at Quontic Bank is currently at 5.05% and a 26-week T-Bill is close to 5%. Orman doesn't believe the renewal rate in May will be 6.89% or higher. As inflation goes down, the rate of I bonds will also be going down, since the rate resets every six months. When you take into account the penalty and lower interest rates, Treasury Bills and CDs will likely be better for investors in the long run.
I bonds are an excellent option for those who want to invest their money safely but still reap some rewards along the way. With their low minimum purchase amount, guaranteed return on investment, inflation protection, and tax-deferment features, it's no wonder Suze Orman continues to recommend them. But since she believes I bond rates will most likely go down, CDs and Treasury Bills may be better alternatives for the long run.
Alert: our top-rated cash back card now has 0% intro APR until 2025
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.
FAQs
I bonds are backed by the government and protect you from inflation because when inflation increases, the combined rate increases. While I bonds are still a great investment, Orman says CDs and Treasury Bills may be better for the long run.
Are I bonds still a good idea? ›
I bonds' rates have since dipped from their headline-grabbing heights—they were as high as 9.62% in May of 2022—to 5.27% for the current crop. That rate may still look attractive, but I bonds' variable rates—combined with their five-year lockup period—may give you pause.
What is the downside of buying I bonds? ›
Cons: Rates are variable, there's a lockup period and early withdrawal penalty, and there's a limit to how much you can invest. Only taxable accounts are allowed to invest in I bonds (i.e., no IRAs or 401(k) plans).
Should I move my money to bonds now? ›
High-quality bond investments remain attractive. With yields on investment-grade-rated1 bonds still near 15-year highs,2 we believe investors should continue to consider intermediate- and longer-term bonds to lock in those high yields.
Does Warren Buffett recommend bonds? ›
Warren Buffett is no fan of the bond market. At a time when every professional fixed-income investor and strategist seems to be recommending the purchase of bonds, Warren Buffett isn't buying that view.
Does Dave Ramsey recommend buying bonds? ›
Ramsey's investing philosophy
Ramsey does not recommend investing in bonds, CDs, real estate investment trusts, or cash. Even if you are about to retire, he recommends having your retirement funds invested in all equities. Investing involves a lot of risk.
Can you ever lose money on I bonds? ›
You can count on a Series I bond to hold its value; that is, the bond's redemption value will not decline. Question: What is the inflation rate? November 1 of each year. For example, the earnings rate announced on May 1 reflects an inflation rate from the previous October through March.
Is it worth buying I bonds in 2024? ›
If you buy an I Bond in April 2024 you will get 5.27% for 6 months, then 4.28% for the next 6 months for a combined 1 year rate of 4.83%. The April 2024 12-month I Bond rate of 4.83% is similar to CDs and Treasury Bills that are roughly 5% interest over the same time frame.
What are the disadvantages of TreasuryDirect? ›
Securities purchased through TreasuryDirect cannot be sold in the secondary market before they mature. This lack of liquidity could be a disadvantage for investors who may need to access their investment capital before the securities' maturity.
What happens to I bonds if inflation goes down? ›
If inflation runs hotter, the rate can go up. If inflation cools off, the rate can go down. The fixed rate portion of an I Bond remains with the life of the bond. The fixed rate is 1.3% for I Bonds issued from November 2023 through April.
Con: Bonds are sensitive to interest rate changes.
Bonds have an inverse relationship with the Fed's interest rate. When interest rates rise, bond prices fall. And when the interest rate is slashed, bond prices tend to rise.
What is a better investment than I bonds? ›
Bottom line. If inflation and investment safety are your chief concerns — TIPS and I-bonds deliver both. TIPS offer greater liquidity and the higher yearly limit allows you to stash far more cash in TIPS than I-bonds. If you're saving for education, I-bonds may be the way to go.
Will bonds go down if the market crashes? ›
Theoretically, bond prices and stock prices have an inverse relationship in the short term. When the stock market crashes, investors often flock to bonds, whereas a bond market crash would typically cause investors to move money into stocks.
Is it better to buy I bonds now or wait? ›
It's a 'better bet' to buy I bonds now
If you want more I bonds, “it's probably a better bet to buy before the end of April and lock in that higher rate for six months,” according to David Enna, founder of Tipswatch.com, a website that tracks Treasury inflation-protected securities, or TIPS, and I bond rates.
Should I buy bonds when interest rates are high? ›
Should I only buy bonds when interest rates are high? There are advantages to purchasing bonds after interest rates have risen. Along with generating a larger income stream, such bonds may be subject to less interest rate risk, as there may be a reduced chance of rates moving significantly higher from current levels.
Why doesn't Suze Orman like bond funds? ›
Suze Orman has a warning for investors relying too heavily on bonds. The personal finance expert believes the draw of high interest rates and an aversion to risk taking are preventing too many people from taking a "lifetime opportunity" in the stock market.
Should I invest in EE or I bond? ›
Bottom line. I bonds, with their inflation-adjusted return, safeguard the investor's purchasing power during periods of high inflation. On the other hand, EE Bonds offer predictable returns with a fixed-interest rate and a guaranteed doubling of value if held for 20 years.
How much is a $1000 savings bond worth after 30 years? ›
How to get the most value from your savings bonds
| Face Value | Purchase Amount | 30-Year Value (Purchased May 1990) |
|---|
| $50 Bond | $100 | $207.36 |
| $100 Bond | $200 | $414.72 |
| $500 Bond | $400 | $1,036.80 |
| $1,000 Bond | $800 | $2,073.60 |
Orman said that having eight months' worth of living expenses is what everyone should strive for. “I know that's a lot, but I want you and your loved ones to be OK if you were ever laid off, or sick for an extended period of time,” she wrote in a blog post. “Sure, it could take years to reach your eight-month goal.
