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Should You Continue Holding I Bonds?

With the increase in interest rates, there are attractive options consider adding to your portfolio while taking on little to no risk. U.S. savings bonds and treasury securities are considered among the safest investments because they offer consistent and predictable returns while being backed by the full faith and credit of the United States government. Money market funds are next in line, with less volatility than stocks or mutual funds but higher yields than traditional savings accounts.

I Bonds

Series I savings bonds (I bonds) are a type of U.S. savings bond designed to provide inflation protection. When purchasing I bonds, you earn a fixed rate of interest that is set when you purchase along with a rate that will be adjusted with inflation. The rate that paces inflation is reset two times each year, once in May and again November. When purchasing, you receive the current fixed base rate and the inflation-linked rate for 6 months.

With recent soaring inflation, in November 2021 the annual I bond yield jumped to 7.12% and hit a record high of 9.62% in May 2022 before falling to 6.89% in November 2022. At the beginning of May, the yield on I bonds dropped to 4.30%. While I bonds may still make sense to protect long-term purchasing power, those seeking current yield can find better rates with similarly low risk elsewhere.

Alternative Investment Options

If you purchased I bonds while the interest rates were high, you may soon want to re-evaluate whether continuing to hold them makes sense, especially given the rates that can be obtained on investments with similar risk thresholds. But note that you must hold I bonds for at least 12 months, and you forfeit three months of interest if you cash out before five years. Once you hit the 12 month mark it’s a good time to evaluate whether holding onto them makes sense.

Treasury Bills (T Bills)

Three-month T Bills are currently paying about 5% in interest. T bills also come in six-month and 12-month maturities. The six- to 12-month government bond yields are currently lower than three-month bills, but the rate is locked in longer. Like I bonds, T Bills are backed by the U.S. Government and considered a very safe investment. If you allow T Bills to mature, there is essentially no risk. If you must cash out before the term you are subject to repricing if rates have changed.

Money Market Funds

Money market funds are generally built on very short-term debt instruments and are characterized by a high degree of safety and liquidity. Funds are typically fully liquid or available within a few days. Currently, there are options paying three to four percent, or more.

If you have cash you don’t plan to use over the next three to 12 months or I bonds that have been held at least 12 months, a high yielding money market or T bill could make a lot of sense. If you have a longer time horizon there are even more options available.

If you have questions about I bonds or other investments, reach out to a HFG Trust Financial Advisor today.

Megan Nichols, CFP®

Financial Advisor


This memorandum expresses the views of the author as of the date indicated and such views are subject to change without notice. Community First Bank, HFG Trust, and HFG Advisors have no duty or obligation to update the information contained herein. Further, Community First Bank, HFG Trust, and HFG Advisors make no representation, and it should not be assumed that past investment performance is an indication of future results. Moreover, wherever there is potential profit there is possibility of loss. This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services, banking services, or an offer to sell or solicit and securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Community First Bank, HFG Trust, and HFG Advisors believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. This memorandum, included the information contained herein, may not be copied, reproduced, republished, or posted in any form without the prior written consent of Community First Bank and/or HFG Trust and/or HFG Advisors. HFG Advisors, Inc, is a wholly owned subsidiary of HFG Trust, LLC. HFG Trust, LLC is a Washington state-registered Trust company and wholly owned subsidiary of Community First Bank.