In May, noted Boston University economist Zvi Bodie wrote a piece on the PBS NewsHour’s Web site that extolled the virtues of I Bonds, a relatively obscure savings bond issued by the U.S. Treasury. Formally known as Series I Savings Bonds, these bonds protect you against both deflation (the earnings rate can’t go below zero and their redemption value can’t decline) and inflation (their rates are adjusted semiannually for inflation). And, in theory, they won’t default because they’re backed by Uncle Sam.

Bodie praised I Bonds’ inflation-protection attribute and believes they should be “the debt instrument of choice.” Bodie’s article also states that investment advisors who act as fiduciaries for their clients should direct them to the U.S. Treasury’s Web site and assist them in setting up accounts for themselves and their children. “To the best of my knowledge, no major investment advisory firm in the U.S. does this,” he wrote.

But despite Bodie’s observation, some advisors say they have looked at I Bonds for their clients.

“We do consider I Bonds for client portfolios,” says Tim Courtney, chief investment officer at Exencial Wealth Advisors in Oklahoma City. He notes that one of the primary shortcomings of fixed-income assets is that they fail to keep pace with inflation roughly one-third of the time.

“We’re likely going into a period where bonds will struggle to produce real returns,” he offers. “I Bonds are a great answer to that.”

The major downside to I Bonds, Courtney says, is that there’s a $15,000 maximum purchase limit per person per calendar year. (Electronic purchases are capped at $10,000 annually. You can buy an additional $5,000 per year in paper I Bonds with your tax refund.) “Many of our clients have more than $1 million in assets, so it takes a while to accrue a meaningful position in I Bonds.”

Besides the purchase limit, I Bonds have other quirks that can make them still less attractive to advisors and clients. They have restrictive holding periods (they’re built with interest-earning periods of 30 years and are meant to be long-term investments). There’s a one-year minimum ownership period, and a three-month interest penalty if the bonds are redeemed during the first five years.

And, these aren’t marketable securities (they can’t be bought or sold in the secondary market). “It’s the lack of liquidity that’s more a concern than anything else,” says Kathy Jones, vice president and fixed-income strategist at the Schwab Center for Financial Research. But, Jones adds, I Bonds do make sense for certain situations. “I think they’re a great idea if you’re putting away money for a child’s education where you don’t have to touch the money for a long time and you know it’ll be inflation-adjusted and tax-deferred.”

Jack Ablin, chief investment officer at BMO Private Bank, says his firm doesn’t look at I Bonds much because it considers them to be more retail-oriented. “They’re a great product meant to be bought by individuals on their own,” he says. “If you’re looking for an asset you’ll be assured will outpace inflation, I Bonds can offer that. Unlike TIPS [Treasury Inflation-Protected Securities], I Bonds offer a premium to inflation. But over long periods of time, dividend-oriented equities do a better job of keeping investors ahead of inflation than either I Bonds or TIPS.”

I Bonds can be bought electronically by establishing an online account with TreasuryDirect (
––Jeff Schlegel