I Bonds to provide a record 9.62 percent return for the next six months.
I bonds, which are inflation-protected and nearly risk-free, will pay 9.62% until October 2022, the Treasury Department announced Monday. “It’s a watershed moment for I bonds,” said Ken Tumin, founder and editor of DepositAccounts.com. There are per-transaction limitations; you can buy up to $10,000 a year in I bonds through the Treasury Direct website. You can hold the security for up to 30 years, but if you cash them in before five years, you forfeit three months’ interest.
I bonds have two rate components: a fixed rate that doesn’t change for the life of the bond, and an adjustable rate that’s based on inflation and is recalculated every six months. The fixed rate for bonds purchased now will be 0.50%, while the variable, or inflation-adjusted, rate will start at 9.12%. Combined, that results in an initial yield of 9.62%.
I bonds, a deflation-protected and nearly risk-free asset, may now be even more appealing if you’re looking for ways to battle rising costs. The Treasury Department revealed that I bonds are paying a 9.62% annual return through October 2022 on Monday, the highest rate since their inception in 1998. The increase is based on the March consumer price index data, which showed annual inflation growing at a rate of 8.5 percent, according to the Department of Labor.
“It’s a watershed moment for I bonds,” said Ken Tumin, the founder and director of DepositAccounts.com, which tracks these assets closely. I bonds, which are backed by the United States government, don’t lose value over time and offer monthly interest. This type of investment is a fantastic location for people to put money they don’t need right now, according to Christopher Flis, the founder of Resilient Asset Management. The fixed rate on these bonds remains the same for 30 years, allowing someone who bought I bonds with a higher fixed rate to outpace inflation for at least six months.
The beauty of this type of financial instrument is that you can use them for a number of different things, including college savings and supplementing your income in retirement, Tumin said. I bonds can only be obtained through TreasuryDirect, which is accessible to individuals with a bank account or credit card. You may buy $10,000 in paper I bonds using your federal tax refund, which is limited to $10,000 per calendar year for individuals. Buying this debt instrument through businesses, trusts, or estates is also an option.
I bonds have several benefits, but they also come with a few drawbacks. Despite the restrictions, I bonds still offer a unique way to save for the future and protect yourself against inflation. “For long-term savers, I bonds provide an attractive real return that is likely to outpace expected inflation,” says Christopher Flis
Another potential danger is reduced future returns. Their interest rates may change downward every six months, and you might want higher-yielding assets elsewhere, Gagliardi noted. If you decide to withdraw your money before the three-month penalty period ends, on the other hand, there’s only a one-year commitment with a three-month interest loss.
If you’re interested in I bonds, it may be a good time to buy them now. This type of bond may be a good investment for assets other than your emergency fund, according to Christopher Flis, a CFP and the owner of Resilient Asset Management in Memphis, Tennessee. “I believe that the I bond is an excellent option for people who do not require their cash immediately,” he continued, such as a substitute for a longer-term CD. However, these aren’t a viable alternative for long-term investments, according to Flis. “But I bonds aren’t a substitute for long-term funds,” he continued. “For example, if you’re saving for retirement, you may want to consider a Roth IRA or other investment account that will offer more flexibility down the road.” If you’re looking for a safe and secure investment with the potential for high returns, this may be the right choice for you.
The bonds are an investment option many may have overlooked in the past. With all the investment products available, the simplicity of I bonds and the current high yield make them an option well worth considering. The security of being backed by the full taxing power of the United States federal government makes them attractive.