In a down economy with low interest rates, it’s difficult to know where to park your cash in a place that offers both liquidity and decent returns. Right now, the markets are much too risky for casual investors to think about risking money in — plus, tying up money in stocks or mutual funds doesn’t provide the right sort of liquidity — and interest rates are so low that savings accounts grow slower than inflation — yielding negative real returns. Isn’t there anywhere for a savvy saver to turn these days?
Apparently yes. The U.S. Treasury’s Series I savings bonds, or I-bonds, are virtually risk-free and offer protection from inflation (which might be on the rise given the drought’s affect on food and gas prices). They make a great “second tier emergency fund” according to About.com’s Money over 55 — a blog geared toward those closing in on retirement, but full of worthwhile advice for all ages:
I Bonds make a great second tier emergency fund. I say second tier, because you cannot sell them within the first 12 months of buying them, so you need other liquid funds to rely on while you build up a stash of I Bonds.
The most you can buy is $10,000 a year per person. You can open an account directly with the Treasury through TreasuryDirect. Interest is tax-deferred. I can see no downside to building up a significant holding of I Bonds, and…everyone should buy the max amount of I Bonds each and every year.
No downside, and modest upside. That’s about the best you can ask for this day and age, especially if you’re doing some long-term financial planning for your retirement. Not a bad idea for those of any age with a cash surplus and nowhere to turn.