How to Use I Bonds – HumbleDollar

How to Use I Bonds John Lim  |  Apr 19, 2022

WITH THE RELEASE of March’s Consumer Price Index, we now know that a risk-free investment yielding 9.6% will be available as of May 2. I’m speaking, of course, about Series I savings bonds from the U.S. Treasury, which have lately been all the rage.

To take advantage, all you need to do is open an account at

Last year, it took me all of 10 minutes to open my account. I first wrote about I bonds back in October 2021. Since November of last year, these bonds have yielded just over 7.1%, which is pretty terrific for a risk-free investment. Unlike traditional bonds, which have been absolutely pummeled this year, Series I savings bonds are far safer—because you’re guaranteed to keep up with inflation and there’s no interest rate risk, meaning they don’t lose value as interest rates rise.

A unique window of opportunity exists this month. By purchasing I bonds in April, you can lock in the current 7.1% interest rate for the next six months. After that, you’ll receive the new rate of 9.6% for the six months that follow. Because the interest earned on I bonds compounds every six months, your total return over the next 12 months will be 8.5%. Thanks to these mouth-watering yields, there are some intriguing arbitrage opportunities available to investors.

The strategies exploit the large difference in interest rate between I bonds and other investments. The most obvious opportunity: Buy an I bond with cash you have in bank accounts and money market mutual funds, assuming you don’t need to access that cash for at least one year. But here are five other strategies to consider:

1. Harvest tax losses among your bond funds. Given the horrible drubbing bonds have undergone this year—and the worst may be yet to come—chances are good that you have sizable losses in many of your bond funds. If these bond funds are held in a taxable account, you can take advantage of tax-loss harvesting. By selling up to $10,000 of these bond funds and using the proceeds to purchase an I bond, you can use the capital loss to lower your 2022 tax bill while simultaneously reaping a guaranteed return of 8.5% over the next 12 months—assuming you buy in April.

Read more here.

Source: How to Use I Bonds – HumbleDollar


  1. Don’t be fooled with the interest rates. There is no REAL growth, just maintains your purchasing power before factoring in taxes. Still a good deal for your cash portion because doesn’t loose purchasing power.


  2. I started buying I Bonds around 2000 and still have quite a few. Some have been cashed in over the years but with the interest accrued in the bond I became less interested in cashing them in and so they continue to add up.


  3. I am a big fan of I-bonds for wealth distribution with the grandkids. I buy I-bonds jointly rotating among the kids. If I need money, I can cash one. If they need tax free college money, I can give them the bonds. If I die, there is no question who gets what all outside of my will.
    The explanation of how I-bonds pays interest is WRONG as is noted in the comments of the original article. Read the explanation on the US Treasury wesite.
    I-bonds have two components that make up the interest rate; a fixed and a inflation that are combined to make a composite rate. Until May 1st, the fixed rate is 0.0% and the semi-annual inflation rate is 3.56%. These two are added together multiplied by two and an APR of 7.12% is advertised. The fixed rate of the bond never changes for the life of the bond. The inflation rate changes in May and November. Come May 1st, new rates will be announced for bonds bought during the next six months (May-Oct). The fix rate is expected to still be 0.0% because the Fed interbank rate only just was raised off of zero. The inflation component is expected to be 4.8% making an APR of 9.6% for new bonds.
    The inflation rate for the next six months is applied to all I-bonds, so the I-bonds bought in April will also have an APR of 9.6%.
    I bought some I-bonds in the the mid 2000’s that had a fix rates of around 3.5% and for the past six months they have been earning 10 to 11% APR.
    The catch: until last year, the rate of return for the 14 years of my oldest granddaughter wasn’t that great and diffently not as good as the stock market but it is making a respectable comeback. In theory, you can buy up to $10,000 worth of bonds. You must hold them for 12 months. After 12 months you pay a 3 month interest penalty if cashing them before they are 5 years old. It is possible that the November rate could be less than the expected 9.6% due to inflation being tamed and after a year you cash out making 9.6% (minus 3 month penalty) and revest your money else where. This would be a better investment compared to buying CDs until the bank saving rates start to raise off of almost zero. In November, I also would expect that new bonds will have a fixed rate of around 1% and a inflation rate of at least 7% or more depending how fast inflation is brought under control by the Fed’s rate increases.


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