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No I for Me

Michael Flack

OVER THE PAST FEW months, we’ve been inundated with articles touting Series I savings bonds and their 7.12% yield. More than a few HumbleDollarers have written about them, including here, herehere and here. It’s gotten so bad that, if I hear one more mention of Series I bonds, I’m going to scream.

Sure, at first glance, 7% sounds enticing. But after a detailed review, it all sounds like a marketing pitch worthy of Uncle Ron Popeil rather than Uncle Sam.

Series I savings bonds purchased before May 1 are guaranteed to yield 7% for the first six months. But after that, they reset to a combination of a fixed rate, which applies for the 30-year life of the bond, and the semiannual inflation rate. The fixed rate is 0% for the current offering period, so—if you hold the bonds for 30 years—you’ll merely keep up with inflation.

Annual purchases of Series I bonds are limited to $10,000 (plus up to an additional $5,000 if you use a federal tax refund to make a purchase). Since you can’t buy savings bonds through your brokerage account, you have to create a separate financial account for your investment—or two if you want to “max out” this proposition by including your spouse.

And oh, by the way, if you die prior to collecting, make sure your heirs know about your latest investment scheme. Since one of the benefits of Series I bonds is that no interest is paid and therefore no taxes are owed until you redeem them, there’s no 1099 to alert your heirs to their windfall. Think you’re too savvy to let that happen? Well, there’s $29 billion in paper savings bonds that have matured but which the owners haven’t bothered to cash in. We may live in a digital age, but I wouldn’t count on the Treasury tracking down your heirs.

I guess there’s safety in knowing that your $10,000 will keep up with inflation. But to me, it all seems like a giant pain in the neck. I already have too many accounts to keep tabs on. Do I really need one more that has only $10,000 in it? Also, why does the Treasury limit your investment to $10,000? Is it to prevent you from taking advantage of the Treasury or is it to prevent the Treasury from taking advantage of you? It reminds me of those commercials touting the Ronco Pocket Fisherman—”only one to a customer.”

Whoever thought this up at the Treasury should be given a raise: offer an introductory teaser rate, then pay interest equal to the rate of inflation for 30 years, pay this interest on the back end and, if the owner dies in the meantime, maybe never pay it at all.

That’s all I have to say about that. Instead, I’d rather spend my time talking about something a little more lucrative. Still willing to open a new account to put that $10,000 to work? I recommend depositing your $10,000 at tastyworks brokerage for three months. You’ll be rewarded with $500, easily outpacing inflation.

I opened an account a month ago. In two months, I’ll be $500 richer. But in the meantime, maybe I should let my wife know the details—just in case.

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