Where to Stash Extra Cash – Can Savings Bonds Help?

When it comes to financial circumstances, we are susceptible to reacting differently than we anticipate. That is because our money is inextricably connected with our emotions. Do I fear further losses? Or am I excited to invest more? Both reactions, though opposite, seek the same goal of wealth preservation and growth. That is why MarsJewett endeavors to provide clients with sound perspective for weathering the ups and downs of long-term financial planning.

Understandably, intentional savers are wondering where to attain a decent return on their money. The bear market started roaring in stocks, bonds declined simultaneously, savings accounts are yielding little, and inflation is at a forty-year high. For those with extra cash on hand, however, there is a decent opportunity for parking up to $10,000. This is not intended for emergency savings or immediate needs, but for cash that is extra, sitting on hand without an intended short-term purpose. 

Where is this so-called extra cash stash? We are talking about Series I Savings Bonds (pronounced: “series eye savings bonds”). Implied by their name, I Bonds, serve as a good hedge against inflation. In fact, since “I” is short for “inflation”, the rates offered by I Bonds are pegged to inflation. To benefit most from I Bonds, savers must park their cash for a while. Yet, given the low rates available in other short-term investments, I Bonds offer an opportunity for the moderate term. To that degree, Series I Savings Bonds are a good vehicle for “extra” monies that are not readily needed on hand. I Bonds are useful for people who have an intended purpose for those funds, like the purchase of a car, vacation, or similar in the future. 

Series I Savings Bonds are currently offering a great interest—now at 9.62%—which will be discussed more specifically below. The rate resets semi-annually, next in October, based on inflation metrics at the time. I bond purchases are limited to $10,000 per individual per year. The yield at time of purchase is provided for six months, even if the rate is adjusted shortly after the bonds were purchased. Series I Savings Bonds are purchased directly from the federal government at the Treasury Direct website linked here. If considering such a investment, the website states, “I Bonds can be purchased through October 2022 at the current rate. That rate is applied to the 6 months after the purchase is made. For example, if you buy an I bond on July 1, 2022, the 9.62% would be applied through December 31, 2022. Interest is compounded semi-annually.” 

There are a few additional caveats to note. While I-bonds are not taxable at the state level (in states with an income tax), they are taxable under federal income tax. Investors must hold I bonds for a full year. After the first year, they can be cashed out, but if held for less than five years, they will lose three months of interest. Therefore, an I Bond that is cashed out after twelve months would receive nine months of interest. The rate will reset, up or down, depending on the inflation at time of the rate reset in the fall and spring. Also, there is opportunity to buy more than $10,000 in bonds if purchased as part of one’s federal income tax return. The Treasury Direct website also provides additional resources and information. 

In this market, it is seemingly difficult to find an adequate parking place for moderate-term savings. Yet for those with extra cash on hand, Series I Savings Bonds offer an opportunity for an advantageous savings rate to hedge inflation. 

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