Treasury I bonds were just a good deal in October. They were very interested with their 9.62% interest rate. And now is the time to consider investing in the latest attractive I bond from the Treasury.
The new bond’s 6.89% interest rate is the fifth highest interest rate on record for Series I bonds since their inception in 1998.
And experts were surprised by the generous amount of the rate.
In Bonds: Website Crashed
The old I bond’s fantastic 9.62% annual interest rate was the highest ever for an I bond. But it is no longer available.
The 9.62% rate was so attractive that the TreasuryDirect.gov website collapsed under the weight of investors trying to buy the debt. Sales in October alone set a record. One-day sales of $979 million on the Oct. 28 deadline were nearly equal to cumulative sales of $1 billion from 2018 to 2020.
October sales were nearly $7 billion.
You can buy the new I bond with a rate of 6.89% from now until April.
How These Bonds Work
The reason I bonds have relatively high interest rates is because they are pegged to the inflation rate. The Treasury sets new rates every six months using inflation data.
As many Americans are painfully aware, inflation has risen to nose-highs in the second half of 2022. “Although inflation began to decline in late summer, it has remained elevated,” said Ken Tumin, founder and editor of DepositAccounts.com, bank. account comparison site.
Technically, these bonds are made up of two components, each paying its own yield. One is linked to inflation. That rate resets every six months. The new inflation-linked rate is the third highest ever, Tumin says.
The other rate, now 0.40%, is set for the 30 year life of the bond. “The Treasury raised the fixed rate to 0.4%,” said Tumin. “That was a little more than I expected.”
The composite rate is 6.89%.
How to Buy Bonds I
Each calendar year, you can purchase an electronic bond worth up to $10,000. In addition, you can purchase up to $5,000 worth of paper I bonds. But the only way you can buy paper versions is to use tax refund money. You can do that when you file your taxes, using IRS Form 8888.
Later, you can convert a paper bond to an electronic bond.
Still, as IBD explained in an earlier report, married couples can use legal loopholes to plow up to a total of $75,000 into these bonds.
This is how each spouse buys $10,000 worth of I bonds. Each spouse must have their own TreasuryDirect account.
If you’re a two-career couple who each run a business, your businesses can buy each of you another $10,000 worth. If your financial plan calls for the creation of two living trusts, those entities can purchase one of these Quests for each of you.
The main purpose of living trusts is usually to transfer property to your loved ones after your death.
Meanwhile, let’s say you have three children. You can buy up to $5,000 worth of bonds for each one. Each child must have their own TreasuryDirect account. That’s another $15,000. As a family, you would be investing $75,000 in I bonds in one year.
But remember the calendar year limits. If you bought up to any limits of the 9.62% rate bonds, you must wait until January to buy the new 6.89% bonds in those same accounts.
Avoid the Risks
You can make money in band I after 12 months. But if you cash one in before it’s five years old, you’ll forfeit the last three months of interest.
The new rate of 6.89% will only last six months before the Fund resets it.
Still, I bond rivals are losing luster as inflationary pressures appear to ease.
Competitors include 5 and 10 year Treasury notes. “We are already seeing fall yields for the 5- and 10-year Treasury notes after news that came out about the October consumer price index (CPI),” said Tumin.
Tumin said, “Even if inflation and the May 2023 I bond inflation rate fall lower, the annual return is likely to be very competitive compared to today’s other safe options, such as one-year treasury bills and one-year certificates of deposit (CDs) ).the current highest one-year CD rate is just 4.84% annual percentage return (APY).
If inflation declines, locking in today’s I bond rates will become even more valuable. “Bond rates will only look attractive when inflation is high,” said Tumin.
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