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A sure-fire way to earn more on your cash  Thumbnail

A sure-fire way to earn more on your cash

One of the top questions we are hearing today from clients is, ‘Where can I invest my cash to earn more than my low-yielding savings account?’ In a low yield environment, it is a troubling problem. But there is an option: I-bonds. 

I-Bonds are US Treasury obligations issued to individual investors. You can’t buy these bonds from your broker or adviser; you have to go to the TreasuryDirect website.  

They are issued in increments of $25 (electronic bonds) or $50 (paper bonds). Each year you can purchase up to $10,000 (electronic) or $5,000 (paper). So, there are some limits. Electronic bonds can be purchased online while paper bonds can be purchased by mail after you buy them with your tax refund. 

How about some yield?

Currently I-bonds are yielding 3.54% for those issued between May and October 2021. Right now, I do not know of any corporate, municipal or US Treasury bond that can provide that yield, with 100% backing of the US Treasury. 

This yield is comprised of a fixed rate and a semiannual inflation rate which can change over time. Interest is added to the bond each month and is paid when it is cashed in. The inflation adjustment is important because if inflation picks up, you’ll get paid more—something that does not happen with most traditional bonds or bond funds.  


I-bonds are exempt from state or local income taxes but are subject to federal income taxes. In addition, taxpayers who meet certain requirements may be able to exclude federal income taxes from the interest earned if used for qualified education expenses. See IRS Form 8815 for specific instructions on excluding I-bond interest from federal income taxes. 

Additional limitations to consider

If you decide to buy I-bonds keep in mind that you’ll need to own the bond for at least one year before being eligible to redeem it. And, you’ll need to own it for at least five years to avoid the early withdrawal penalty of three months’ interest. Of course, the maximum purchase about is $10,000 per year per taxpayer. So, you can’t put $250,000 into an I-bond in a single year.  However, if you are looking for higher yield for a portion of your cash holdings, and are willing to contribute over several years, I-bonds might make sense for you. 

While I-bonds offer relatively attractive yields right now, the US Treasury can always change or discontinue I-bonds in the future. For now, I-bonds represent a pretty attractive, low risk way to earn above average yields. 

Want to know about I-bonds and if they are right for you? Give me a call. I’m here to help. 

Lyman H. Jackson



Source: https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm as of May 31, 2021. 

Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.

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