Although I-Bonds are a good way to generate tax-free yield in today’s economy, they are subject to penalties if surrendered before their maturity date. The question that begs to be answered is this: are these bonds a good investment in the long run? Do their pros outweigh the cons? Read more below to decide for yourself.
Pros of I-Bonds
- Higher Income: Can potentially earn a higher interest rate than what is available in the current market.
- Capital Preservation: The redemption value of the I-bonds cannot decline.
- Tax Efficient: Savings bonds are exempt from taxation by any State or political subdivision of a State, except for estate or inheritance taxes. Interest earnings are subject to Federal income tax. Interest earnings may be excluded from Federal income tax when used to finance education.
Cons of I-Bonds
- Variable Rate: The rate on the I-bond is not completely fixed, where part of the interest rate is variable based off of the change in CPI-U.
- Limited Amount to Purchase: The maximum purchase per calendar year is $10,000.
- Early Redemption Penalties: If the bond is redeemed before 5 years, you forfeit the interest from the previous 3 months. You cannot redeem the bond prior to the first 12 months being passed.
Please don’t hesitate to reach out to one of our Schneider Downs Wealth Management Advisors if you have additional questions.
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
