Want to Earn 7% Risk Free? The Series I Savings Bond is the Single Best Risk-Adjusted Investment Opportunity Today.

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Series I savings bonds are one of the lesser-known government bonds available to individual investors. It currently offers a whopping 7.12% interest rate and is backed by the full faith and credit of the United States. With the Federal Reserve keeping short-term rates near zero, a 0.5% yield in an online savings account is a pretty competitive rate these days. A 7% risk-free return seems almost too good to true, yet it is. The I in Series I stands for inflation and the interest rate on the bond adjusts every 6 months based on observed inflation rates of the CPI (consumer price index). Without getting into the complexities of how the rate is calculated, it is sufficient to know that high inflation rates experienced earlier this year have caused the interest rate on the Series I bond to reset to 7.12% for the next 6 months.

The ability to earn 7% risk free makes the Series I savings bond the single best risk-adjusted investment opportunity available to individual investors. There are some limitations, namely that each individual is limited to purchasing $10,000 of Series I bonds per year, the 7% rate is only guaranteed for six months, and the bonds can only be redeemed after a year. However, the pros far outweigh the cons.


  • High Interest Rate—The 7.12% risk-free return speaks for itself. This rate is guaranteed for the first 6 months after purchase and then it rests (likely lower) based on the observed inflation over the next 6 months. As a point of reference, the rate on the Series I bond was 3.5% before the latest reset.
  • Income Tax Deferral—A unique tax advantage of the Series I bond is that interest earned is tax deferred for federal income tax purposes until you cash the bonds in.   
  • State Income Tax Free—Interest earned on Series I bonds are excluded from state income taxes. This is a significant plus to residents of high-income tax states such as California and New York.
  • Federal Income Tax Free If Used for Education—Interest on the Series I bond is also free from federal taxes if used on education. However, there are income phaseouts that eliminate this benefit for most higher income households.


  • Purchase Limitation—Each individual is limited to purchasing $10,000 of Series I bonds through Treasury Direct per calendar year.
    • A couple would be able to buy $20,000 per year ($10,000 each).
    • Although it is also possible to buy Series I bonds through your children’s names, it is not recommended as you must gift the money to them. The money would be set aside in a custodial account with legal ownership transferred to the children at age of majority (18 years old in many states).
  • Poor User Interface—Series I bonds must be purchased directly from the US government through Treasury Direct. The process is clunky and leaves much to be desired.
  • Minimum Term of Ownership—The bonds cannot be redeemed before 1 year.
  • Modest Penalty for Redeeming Early—If you redeem the bonds before 5 years, you forfeit the interest from the prior 3 months. However, with the current rates so high, the Series I remains a great deal even if you have to forfeit 3 months of interest.


The 7% rate and tax advantages make the Series I bond a terrific deal for most people. A couple could purchase $40,000 of bonds over the next few months (by buying $10,000 each now and another $10,000 each in January as part of the next calendar year’s purchase). I have already bought mine for this year and am eagerly looking forward to purchasing another $20,000 in January.


I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

The information in the article is provided for informational purposes only. It should not be construed as investment advice or advice on buying, selling, or other types of transactions relating to an investment in products or services, much less an invitation, an offer or a solicitation to invest.

The information in the article is provided solely by virtue of the fact that everyone will independently make their own investment decisions: the report does not take into account investment objectives, nor specific needs or financial situation. In addition, nothing in the article represents or is intended to express financial, legal, accounting or tax advice. You should consult your own investment or financial advisor before taking any actions.

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