“As inflation falls, the coupon rate will fall in tandem,” said Brian Price, investment analyst at Octavia Wealth Advisors in Cincinnati, adding that holding these bonds five years to avoid a three-months’ interest penalty “subjects the investor to at least 10 adjustments to their coupon rate before they can exit the investment without penalty, taking away control to move money as opportunities change.”
Price said his firm doesn’t see these bonds as a sustainable, long-term investment. “While inflation may remain above the Fed’s 2% target throughout the coming years, it will fall from its current levels, and once it does the yields on these bonds will fall substantially,” he said.
Series I bonds can be a good way of hedging your emergency reserve against inflation, but “there is always the consideration that your funds are locked up for a year, minimum,” Conzo said. “For those starting an emergency fund, these instruments may not be a suitable investment due to the illiquidity. For those who have an established emergency fund and have the liquidity to purchase these bonds, the improved interest rate, compared with lower-yielding bonds, may be attractive.”
All in all, Series I bonds are “not a bad place to park some money,” Pon added.