EE Bonds and I Bonds for Doctors

We’ve recently touched on down markets, inflation, and how to protect yourself from their effects. While we typically say down markets are a great time to invest in the stock market, we also want to share options on more conservative/stable investment options when the market is anything but. Government bonds are a low-risk way to invest with a consistent, guaranteed interest rate.

We’ve recently touched on down markets, inflation, and how to protect yourself from their effects. While we typically say down markets are a great time to invest in the stock market, we also want to share options on more conservative/stable investment options when the market is anything but. Government bonds are a low-risk way to invest with a consistent, guaranteed interest rate.

US Treasury Bonds

Essentially, the US taxpayers are lending the government money, and the taxpayer collects interest on that loan in the interim. Bonds are considered the safest investments worldwide.

EE Bonds versus I Bonds

EE Bond

From the year 2005 onward, you purchase these at a fixed interest rate of .1% and they collect interest until you cash in. This is a very small interest percentage; however, the government guarantees the bond value will double over 20 years.

I Bonds

These are meant to protect your investment from inflation. They have a blended fixed-rate and variable inflation rate; the variable rate is calculated based on the consumer price index. These two rates combined are currently sitting at 9.62% as of August 2022, but are subject to change. These rates are reevaluated every six months.

Comparing and Contrasting

Both are exempt from state income taxes, but are subject to federal taxes.

Both have a minimum purchase of $25.

Both have a maximum of $10,000 per year, however you can use your tax return to purchase an additional $5,000 in paper I Bonds every year.

Both accumulate interest over 30 years.

When can I cash out?

You cannot cash either of these within the first year. If you cash out in years 2-5, you’ll lose the past 3 month’s interest. This is similar to vesting that can apply to your retirement plan at work. Your employer may have a vesting schedule on the employer contributions made to your retirement plan. If you leave before you’re fully vested your employer can take back or keep the amount they contributed. After year 5, there is no penalty to cash out your bonds. If you do decide to cash out, you could be missing out on interest that would be earned.

Are bonds right for me?

If you have extra money to invest, and want to avoid the stock market roller coaster ride, bonds are a low-risk way to keep your money working for you. Just another way you can maintain your sanity and lower your financial stress!

We do not recommend considering this strategy if you are currently on a tight budget and think you may need to use the funds in a short-time frame.

Below you will find a helpful table straight from treasurydirect.gov that illustrates what we’ve talked about today.

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Katherine Vessenes, JD, CFP®, is the founder and CEO of MD Financial Advisors who serve 500 doctors from Hawaii to Cape Cod. An award-winning Financial Advisor, Attorney, Certified Financial Planner®, author and speaker, she is devoted to bringing ethical advice to physicians and dentists. She can be reached at [email protected].