Over the last several years we have seen our checking, savings, and money market accounts generate very little interest as rates have been at historic lows. With the recent spike in inflation
Series I Savings Bonds are yielding over 7%, so let’s take a look at these savings bonds and determine if they are a fit for you.
The U.S. Treasury started offering this flavor of savings bonds in the late 90s. I-Bonds interest rate is made up of two factors – a fixed rate and an inflation rate. The fixed rate at this point is 0.0%. The inflation rate will change every six months reflective of the ongoing rate of inflation. The I-Bonds current annual rate of 7.12% makes them very appealing. The rate adjusts every six months on May 1st and November 1st. Since these bonds are offered and guaranteed by the U.S. Government they make for a safe investment vehicle. The bonds will earn interest for up to 30 years if not cashed in before that. The interest is taxable at the Federal level, but not at the State level.
Sounds like a no-brainer, right? Well, let’s dig a little bit deeper. I-Bonds cannot be cashed within the first twelve months of purchase. Note that they can be cashed in after twelve months from the purchase date and you will receive the original amount invested plus the accrued interest. However, if I-Bonds are cashed in within five years of the purchase date you will forfeit three months of interest. There are also limits of how much you can buy. Each taxpayer can purchase up to $10,000 of I-Bonds per year. So, a husband and wife can buy up $20,000 total each year. Unfortunately, these cannot be purchased in retirement accounts such as IRAs or Roths and Partnership Financial cannot purchase them on your behalf through your accounts at SSG or TD Ameritrade. Each taxpayer must purchase them directly through Treasury Direct.
Investing in I-Bonds would make sense as an emergency pot of cash knowing that you cannot access it for at least a year and also for your shorter to intermediate goals – such as buying a car or updating your home in the next few years. Please note that the rate on these bonds are variable. So, with inflation high at this point, the interest on I-Bonds will also be high. If in a year or two inflation falls to more historic levels, then the interest will also fall.
To read more about I Bonds please read the latest ACP newsletter (along with articles on Resolutions, Working in Retirement, and Cryptocurrency) here.
Again, we are unable to purchase I-Bonds on your behalf. If you have any questions please let us know. If you would like to purchase I-Bonds you will have to purchase them directly through the U.S. Government at Treasury Direct. To follow are the steps on how to do so – click here for a PDF.
