The golden deal of I Bonds has subsided.
Watch Cameron here: https://youtube.com/shorts/HbPnqumYc9Q?feature=share
As I make my way about town this week and enjoy the wonderful palette displayed by sycamores, maples, poplars, and oaks in Lexington, I’m reminded of Robert Frost’s poem, “Nothing Gold Can Stay,” which was originally published in October 1923 in the Yale Review. Happy 100th Birthday to this classic! I’ll go ahead and share the poem at the bottom of the page for you to enjoy after I put on my financial planner hat and remind you how true that statement continues to be.
Last spring there was a truly golden deal available for buyers of US Series I Savings Bonds. I-bonds get their “I” from inflation. These US government inflation-linked savings bonds pay interest based on an inflation adjustment that happens every six months. In May 2022, that amount jumped to 9.62%, up from 7.12% in Nov 2021, reflective of the (hopefully permanent) high water mark of post-Covid inflation.
Compared to about 2.5% on non-inflation-linked treasury bonds, this was a great opportunity for yield, about triple the risk-free rate of return. Unfortunately for investors hoping to capitalize, I-bond purchases are always limited to $10,000 per person per year. Furthermore, they must be purchased directly from the US Treasury, so we are not able to buy I-bonds in client accounts.
Fast forward 18 months and Robert Frost was right, nothing gold can stay. As inflation has moderated, I-bonds are paying 3.38-4.3% today while a one-year treasury, as well as many short-term bank CDs, are at over 5%. It no longer makes sense to hold I-bonds solely for short-term yield. If you made some purchases, you can redeem them at TreasuryDirect.gov. Recall that if you hold I-bonds for less than five years, you lose the last three months of interest upon redemption. That loss does not even begin to wash out the great benefit of having higher inflation-linked rates throughout last year, over 6.4% for the entirety of 2022. Unless you want to continue to hold your I-bonds as an inflation hedge, pat yourself on the back and move on.
Nature’s first green is gold,
Her hardest hue to hold.
Her early leaf’s a flower;
But only so an hour.
Then leaf subsides to leaf.
So Eden sank to grief,
So dawn goes down to day.
Nothing gold can stay.
-Robert Frost, Oct 1923
I-Bond Rate Chart: https://treasurydirect.gov/files/savings-bonds/i-bond-rate-chart.pdf