All links are the rage now. Are they a good choice for your wallet?

Find out which bonds make debt investing exciting!

the main points

• Bonds are US government debt obligations that pay a price related to inflation.
• High inflation has pushed bond prices up nearly 10%.
• With uncertain yields and long holding requirements, I bonds are far from ideal savings tools.

Apparently overnight, Series I savings bonds (known as I bonds for short) became the talk of the town. What are i links and why are they enjoying a renaissance? Read on to find out.

What is I Bond?

In essence, Bond I is just another version of debt issued by the US Treasury. However, their lightning power lies in one thing: variable interest rates. Unlike a traditional bond, where prices are fixed to maturity, the first bond’s interest rate is calculated by adding a fixed rate to the inflation rate. This means that when inflation is on the rise, the interest rates offered on I bonds are too.

There are a few other things you should know about I ties. First, they mature within 30 years, but can be cashed out without penalty after a five-year holding period. I bonds cannot be cashed out before 12 months of purchase. Bonds are issued in amounts over $25. This means that you can buy a $25.01 I bond if you want. In addition, any US citizen or resident with a Social Security number can purchase I bonds, and they can be purchased or gifted to children. However, eligible buyers can purchase only a limited amount of I bonds per year.

Why are bonds so popular?

As mentioned above, the most distinguishing feature of an I bond is the interest rate, which rises with inflation. And for those who live under a rock: Inflation is high now. Currently, inflation rates are over 8%, well above the 2% average. Against this backdrop, interest rates on I-bonds have reached massive heights. Currently, the bond yield is 9.62%.

This is a big deal because of the mismatch between risk and reward. Usually, a high return, such as a high rate of interest, cannot be achieved without relative risk. So, when the US Treasury, one of the safest debtors, offers returns that approximate that of the stock market, investors tend to take notice.

Looking for current prices? Check out our best CD prices.

Before you buy…

While interest rates may be high now, they are not guaranteed to stay that way. Bond rates are recalculated every 6 months, so an interest rate of 9.62% today does not mean a rate of 9.62% in the future. In an economy where interest rates typically hover around 2%, a return to normalcy would also mean a return to lower rates on bonds.

And if you’re not careful, you’ll be stuck with these prices for some time. The bonds must be held for one year before you can cash them out, in case the price drops significantly. The process of disbursing the money before the passage of 5 years has a high cost – that is, a three-month reduction in the interest rate of the value of the bond. Purchasing an I bond means that you are locked up for several years, or you will have to pay the price.

US citizens and residents can purchase only $10,000 worth of I bonds in any given year, which means that bonds with relatively low risk and high reward likely won’t make or break your investment account. While bonds are currently a very attractive investment, buyers should consider their ability to withstand future price changes and hold them for the long term before making a purchase.