I bought some U.S. Treasury Series I savings bonds last month. It is the first time I’ve directly owned a bond since I was gifted U.S. savings bonds as a kid.

My decision was a mathematical one. I’m earning 0.65% interest on cash savings right now. Series I bonds are yielding 9.62% for the next six months. Even if the interest rate paid on I bonds were to drop to 0% in November 2022 (which seems very unlikely given the breakeven inflation rates shown in this month’s Illustrating Trends Dispatch), I’d still come out far ahead by owning the I bonds.

From an allocation perspective, I view I bonds as a tactical substitute for other shorter-term savings products. Certificates of deposit (CDs) are perhaps the best example. The average one- and five-year CD rates are 0.24% and 0.41%, respectively, according to Bankrate.com. (As a quick aside, if you are seeking CDs or interest-bearing savings accounts, Discover Bank offers higher rates to AAII members. Go to https://aaii.discoverbank.com for more information.)

A 12-month minimum holding period exists for I bonds. If you sell your I bonds within the first five years after purchase, you will forfeit the last three months of interest. Purchases are limited to a maximum of $10,000 per year per person.

Series I bonds can be purchased at TreasuryDirect.gov. You can buy them in any amount of at least $25 in electronic form. It took me approximately 20 minutes to set up the account and place the order. The process is straightforward except for one thing: I found myself looking around the TreasuryDirect website to find the button to create an account. The link is in the right-hand navigation menu.

Most importantly, while the current yield of 9.62% is juicy, it is not static. If inflation calms down as the bond market currently expects it to, the composite rate will fall. (In May 2020, for instance, the composite rate for I bonds was 1.06%.) So, it may make sense to view I bonds as a tactical choice for short-term savings.

Financial planner Charles Meyer goes into greater detail about what I bonds are and how their composite interest rate is determined in his article. He also explains why they might be worthy of consideration now and when you might consider cashing in.

Meyer’s article is one of three we are running this month tied to the subject of inflation. The aforementioned infographic on breakeven inflation rates is another. The third is a look at how a withdrawal strategy based on required minimum distributions (RMDs) held up against inflation. Contributing editor Craig Israelsen’s finding, not surprisingly, is: It depends on the allocation followed. Portfolios with at least a 40% allocation to equities have been the most effective at providing withdrawals grown over time at a rate above that of inflation.

Some budgeting is still required because RMDs fluctuate with the value of the portfolio. RMDs may increase or decrease in size from one year to the next. (Even with the periodic declines, the overall growth tends to be greater than inflation if a significant allocation to equities is maintained.) Having some ability to vary spending helps retirees cope with these fluctuations. (See Wade Pfau’s article, “Strategies for Determining How Much You Can Spend in Retirement,” in the May AAII Journal for more information about variable spending strategies.)

A Change in Next Month’s Print Edition

The paper we’ve been using for the print edition of the AAII Journal for the past several years has been discontinued. My expectation is that next month’s issue will be printed on a different paper stock. This new paper will be a temporary fix as it too is being discontinued at the end of this year.

Many paper mills have pivoted to producing higher-margin corrugated paper. At the same time that we’re dealing with paper issues, ink costs are rising and postal rate hikes will go into effect in July.

Many AAII members have been switching to receiving the AAII Journal electronically. It’s a win-win. They get the latest issue sooner, they are able to save their favorite articles to personal digital libraries and they can easily access related video content. Plus, they are helping us to continue providing great content and tools without increasing the cost of membership.

To join them by switching from print to digital delivery, contact Member Services at members@aaii.com or 312-676-4307. Alternatively, go to My Account on AAII.com, scroll down to My Subscriptions and click “Opt Out” by AAII Journal.

Wishing you prosperity and good health,