Here’s Why I Wouldn’t Buy I Bonds Today

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There was a time when I bonds appealed to me. Read on to see why that’s no longer the case. 

Last year, when inflation surged, many people rushed to purchase I bonds. And I did the same.

I bonds are government-backed securities whose interest rates are tied to inflation. Since inflation levels were ultra-high last year, I bonds were appealing to me due to the generous interest rate they were paying.

But now that inflation is cooling, I bonds make a lot less sense for me — especially since I can actually get a better rate on my money in a high-yield savings account.

An investment that no longer pays

The nice thing about I bonds is that they’re a safe investment. Because they’re backed by the U.S. government, you’re not taking the same risk as you are by investing in stocks.

But these days, I bonds don’t appeal to me so much since they’re not paying a whole lot of interest. The interest rate on I bonds resets every six months. Now through the end of October, they’re paying 4.3%.

Generally speaking, that’s not a bad rate for a low-risk investment (some might even call it a no-risk investment, though I’m personally hesitant to call any investment no-risk). But because savings accounts and CDs are paying so generously right now, I can’t justify an I bonds purchase.

Once you buy I bonds, you’re required to hold them for at least a year — there’s no option to cash them out prior to the 12-month mark. And if you redeem your I bonds before having held them for five years, you’ll face a penalty.

Meanwhile, cashing out a CD early comes with penalties, too. But it’s possible to open a six-month or one-year CD so you’re not committing to as long a time frame. And since CDs today are paying more interest than I bonds, they make more sense to me.

Heck, even regular savings accounts are paying a little more interest than 4.3% (this doesn’t mean every bank is paying more, but many are). And with a savings account, you have zero restrictions. You can withdraw your money at any time and penalties won’t come into play.

Even if you’re not interested in a CD, if you’re looking for a safe place to put your money today, a savings account makes more sense than I bonds. And to be clear, if you bank at an FDIC-insured institution, your deposits of up to $250,000 are protected ($500,000 if it’s a joint account).

Things could change

A big reason I’m not interested in I bonds now has to do with the high interest rates banks are paying. If that changes in time, I may, in turn, change my tune on I bonds. But for now, I’m not looking to buy them.

If you’re someone who’s searching for a safe investment, you may be inclined to purchase I bonds. But before you do, look at savings accounts and CD rates to see what makes more sense.

Also, do note that come Nov. 1, the interest rate on I bonds is going to reset. And it will likely reset to a lower amount. So if you’re still inclined to purchase I bonds despite the fact that banks are paying more, you may want to move before the end of October.

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