Suze Orman Says Americans Should Buy This Investment 'Now'

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  • With inflation at 40-year highs, the annual return for government I bonds is 9.62%.
  • I bonds protect you from inflation because when inflation increases, the combined rate increases.
  • I bonds are also tax-deferred until you take a withdrawal and are also exempt from state and local taxes.

You need to buy I bonds now, and here's why.

How would you like to earn close to 10% with virtually no risk? Right now you can. Suze Orman is a well-known personal finance expert, and she recently said that Americans should buy I bonds now. She cites several reasons for this, including the current high interest rate environment, as well as the fact that I bonds offer protection against inflation.

What are I bonds?

I bonds are a type of savings bond offered by the United States government. I bonds are intended to provide a safe, low-risk investment option for individuals. I bonds earn interest for up to 30 years, and the interest is exempt from state and local taxes. The interest is also tax-deferred until you take a withdrawal. The interest rate on I bonds has two components: a fixed rate of return and a variable rate of return that is adjusted for inflation every six months. 

The fixed rate never changes and is announced May 1 and Nov. 1 every year. The fixed rate applies to all I bonds sold during the six month period. Currently, the fixed rate is 0%. The inflation rate is based on the Consumer Price Index. With CPI at 40-year highs, the current inflation rate is 9.62%. The combined rate is called the "composite rate" or "earnings rate." The only place to buy an I bond is through You cannot purchase them through a typical brokerage

What are the downsides of I bonds?

While I bonds are currently returning close to 10%, thanks to high inflation, rates can go down just as fast as they went up. Since inflation can go up or down, deflation can bring the combined rate down below the fixed rate (as long as the fixed rate is not zero). Since the combined rate is currently 0%, even if inflation is negative, it will not drop below 0%. 

When you buy a Series I bond, the money is locked up for the very first year and can't be touched. In years two through five, the penalty to liquidate is three months' worth of interest. And after five years you can take it out any time you want. I bonds are sold in any amount above $25 up to the maximum of $10,000 per person. 

Should you buy I bonds?

If there is one investment every person should have right now, it is a series I bond, according to personal finance expert Suze Orman. The updated numbers for Nov. 1, 2022 have been announced at 6.48%. This means you have until then to get the 9.62%. Keep in mind that I bonds pay out twice a year or semi-annually. So if you purchase an I bond now, you would get 4.81% for the next six months, and then after that, it would be 3.24% (half of 6.48%). By adding those two up, you would still get 8.21% for the next 12 months, which is still a great rate considering the risk of default is extremely low.

Even with the penalty, Orman states that you can get at least 8.21% (if you buy before Nov. 1, 2022) and if inflation suddenly drops and I bonds return only 2%, then the three-month penalty would be negligible. According to Orman, in 2020 only $364 million worth of I bonds were purchased. However, as inflation started to heat up, from November 2021 until now, over $27 billion of I bonds have been purchased, reflecting the higher interest rates. That's why now is a great time to consider I bonds. 

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