Individual bonds will not lose money. They may not keep up with inflation, but they won't lose money. I buy I Bonds and have started building a ladder, $10K per year, as a hedge against inflation or a market meltdown.
Cons of I Bonds
Purchase limits: Investors are limited to purchasing a maximum of $10,000 in electronic I Bonds per year, with an additional $5,000 available in paper I Bonds if purchased using tax refunds. This cap makes I Bonds unsuitable for those looking to invest larger sums.
I bonds interest rates. Accessed Nov 1, 2024. This composite rate of 3.11% applied to $10,000 in I bonds, would earn a guaranteed $155.50 in interest over the next six months (not $311, that's because it's an annualized rate) — but you cannot cash in your bond until you've held it for a year.
I bonds protect you from inflation because when inflation increases, the combined rate increases. Because inflation can go up or down, we can have deflation (the opposite of inflation). Deflation can bring the combined rate down below the fixed rate (as long as the fixed rate itself is not zero).
November 1, 2024. Series EE savings bonds issued November 2024 through April 2025 will earn an annual fixed rate of 2.60% and Series I savings bonds will earn a composite rate of 3.11%, a portion of which is indexed to inflation every six months. The EE bond fixed rate applies to a bond's 20-year original maturity.
Bonds are generally considered a less-risky complement to the volatility of stocks in an investment portfolio. U.S. Treasurys, and specifically Treasury bills and Treasury notes, are the benchmark for a nearly risk-free investment if held to maturity.
Despite 2 cuts in the short-term fed funds rate and the likelihood of more to come, 10-year Treasury bonds yield more as of December 3, 2024, than they did at the beginning of the year.
Unlike I-bonds, TIPS are marketable securities and can be resold on the secondary market before maturity. When the TIPS matures, if the principal is higher than the original amount, you get the higher amount. If the principal is equal to or lower than the original amount, you get the higher original amount.
Must I pay tax on what the bond earns? You choose whether to report each year's earnings or wait to report all the earnings when you get the money for the bond. If you use the money for qualified higher education expenses, you may not have to pay tax on the earnings.
Securities purchased through TreasuryDirect cannot be sold in the secondary market before they mature. This lack of liquidity could be a disadvantage for investors who may need to access their investment capital before the securities' maturity.
You can sell your I Bonds any time after you've held them for 12 months or more. If you cash them before five years, you'll lose the last three months of interest. After five years, you can cash them without any penalty.
You can get your cash for an EE or I savings bond any time after you have owned it for 1 year. However, the longer you hold the bond, the more it earns for you (for up to 30 years for an EE or I bond). Also, if you cash in the bond in less than 5 years, you lose the last 3 months of interest.
Purchase prices start at $25, and you can buy in any amount above that up to $10,000 per person, per calendar year. You also can buy an I bond in paper form, through the Tax Time Purchase Program.
With that in mind, you have one option for avoiding taxes on savings bonds: the education exclusion. You can skip paying taxes on interest earned with Series EE and Series I savings bonds if you're using the money to pay for qualified higher education costs.
TreasuryDirect.gov is the one and only place to buy and redeem U.S. savings bonds and other securities directly from the U.S. Treasury! Your investments are backed by the full faith and credit of the United States government.
Bonds usually go up in value when the stock market crashes, but not all the time. The bonds that do best in a market crash are government bonds such as U.S. Treasuries.
Treasuries are safe investments because they are backed by the “full faith and credit” of the US federal government. The US government has never defaulted on a debt obligation. One special category of treasury securities is Treasury Inflation-Protected Securities (TIPS). TIPS interest rates are indexed to inflation.
Key Takeaways. Stock price drops reflect changes in perceived value, not actual money disappearing. Market value losses aren't redistributed but represent a decrease in market capitalization. Short sellers can profit from declining prices, but their gains don't come directly from long investors' losses.
An important advantage of TIPS versus I bonds is that individual investors face virtually no purchase constraints. (The upper limit on TIPS purchases runs into the millions.) That makes them the only reasonable option for larger investors looking to build a sizable stake in inflation-fighting investments.
I bonds have important tax advantages for owners. Interest earned on I bonds is exempt from state and local taxation. Also, owners can defer federal income tax on the accrued interest for up to 30 years.
The 4.28% composite rate for I bonds issued from May 2024 through October 2024 applies for the first six months after the issue date. The composite rate combines a 1.30% fixed rate of return with the 2.96% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).