Is now a good time to buy I-Bonds?

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 Q. I was wondering if this is a good environment to purchase some I-Bonds? I’m 56 years old and don’t have much bond exposure in my investments. They seem like a cost effective way to stay a little bit ahead of inflation.

A. It’s important to have fixed income exposure in every portfolio.

I-Bonds are an effective way to keep up with inflation, not necessarily get ahead of it, said Alison Williams, a certified financial planner with Stonegate Wealth Management in Oakland.

She said I-Bonds have two sides to their interest rate: variable and fixed.

” Twice per year, the variable portion of an I-Bond’s interest rate is adjusted to reflect inflationary changes,” she said. “The fixed portion, however, has caused these types of bonds to become less and less competitive over the last decade.”

Williams said the Treasury Dept. does not publish an explanation of how the fixed rate is set, and it does not consistently follow any rule of thumb.

For example, when I-Bonds debuted in 1998, the fixed return was a bit more than 3 percent, Williams said. When interest rates dropped in 2003, it was 1.1 percent.

“The Fed raised interest rates 17 times from 2004 to 2006, but the I-Bond’s fixed return was only increased to 1.4 percent,” she said. “As per the past, the fixed component seems to be an arbitrary number. It is currently zero percent and has been since 2010.”

Williams said you should consider that I-Bonds are a long-term investment, so there are restrictions on when they can be redeemed. She said there is a one-year minimum holding period, and if sold within five years, you forgo the last three months of interest, which she said strips investors of flexibility if/when real return rates improve.

Given that you have limited bond exposure and are nearing retirement age, Williams says some sort of fixed income is necessary in your portfolio.

She said if inflation is your greatest concern, I-Bonds aren’t a bad investment, but there are lots of better deals out there in the fixed income market.

“Your return with I-Bonds is solely inflation. We recommend investing in individual bonds as opposed to bond funds whose value can drop significantly when interest rates rise,” she said.

Taylor Thomas, a certified financial planner with Round Table Wealth Management in Westfield, said he doesn’t favor I-Bonds in today’s market because the current outlook for inflation remains low.

Bond investing, right now, is tough overall, he said.

“The Federal Reserve Bank has kept rates very low since 2009 and at some point we would expect rates to begin to rise – this has been the theory for the past few years and we are still waiting for rates to increase,” Taylor said.

Taylor notes that I-Bonds pay interest upon redemption, so if you need income now, I-Bonds wouldn’t be the correct investment.

He recommends diversification on the fixed income side of your portfolio, including a mix of government, corporate, floating rate and high-yield bonds, and possibly considering an active bond manager who has the ability to short sell bonds.

“The current bond market and outlook for inflation does not compel me to recommend I-Bonds or any other type of inflation-linked bond,” he said.

To learn more about I-Bonds, visit

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This story was first posted in December 2014. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.