Protecting Your Cash Reserves From Inflation

There are options you can utilize to help protect some of your cash reserves against inflation. We understand inflation is a concern for many right now as the Consumer Price Index continues to rise and questions about when inflation will subside seem to persist. While we are not able to predict the future, we believe we can steward the resources God has given us by taking advantage of the tools that exist to help us prepare for the future regardless of how the markets or inflation behave in the short run. Maintaining cash reserves for anticipated expenses, as well as the unexpected costs that occur, is a fundamental part of any sound financial plan. Unfortunately, the options for earning meaningful interest on these reserves without taking undue risk are extremely limited in today’s economic environment. If you are interested in the possibility of earning a higher yield and protecting some of your cash reserves against inflation, you may want to consider Series I savings bonds as an option.

The U.S. Treasury issues a 30-year bond known as the Series I savings bond or “I Bond” that consists of a fixed rate (currently 0%) and an inflation rate, which is adjusted and compounded semi-annually to keep up with the most recent rate of inflation. This rate is adjusted twice a year on the first business days of May and November. Given the recent rise in inflation over the last several months, the adjusted inflation rate for I Bonds has been increased to 9.62% APR, effective May 2022 – November 2022 (up from 7.12% APR for the previous 6 months). In the long run, if inflation subsides, the rate will subsequently be adjusted down to reflect the decrease. If inflation persists, I Bonds will continue to provide a higher return than typical savings and money market accounts. Furthermore, they are protected against deflation as the adjusted rate can never be below zero.

I Bonds must be held for a minimum of one year, and any that are redeemed within the first five years will lose the last three months of interest. They have an annual limit of $10,000 per individual, which means a married couple with two children could purchase up to $40,000, and those with a trust can purchase an additional $10,000. Interest is only subject to Federal tax rates and can be deferred until the bond is redeemed at or before maturity. I Bonds can be purchased by opening a free account through TreasuryDirect.gov

It is our mission to make you aware of potential tools to facilitate your goals and peace of mind about your finances. If you have additional questions or want to discuss your investment strategy, please reach out to your Blue Trust advisor or contact us at 800.987.2987.