Are you feeling the effects of inflation? I don’t think there are many people who can answer “no” to that question. We are all dealing with the increased prices of our daily needs. What if I told you there was a way that you could financially benefit from inflation? That answer just might be Series I Savings bonds in the Fall of 2022. Let’s talk Series I Bonds’ Pros and Cons.
What are Series I Savings Bonds?
Series I Savings Bonds are issued by the federal government and the yields or rates of return rise with inflation.
We all know that inflation is bigger than we have seen in a long time because it is more than our pocketbooks have felt in a long, long time. The price index surged in the month of March by 8.5%, which is the most it has increased since 1981!
This makes I Bonds desirable to investors now, and you may be hearing about them in the media or from others around you.
Based on March’s price levels, the Series I savings bonds yield is currently set at 9.62%. That is a savings opportunity with little to no risk!
It is virtually a guaranteed rate of return, and you can’t find returns like that anywhere else.
Is the interest earned on Series I Bonds that great?
If you have looked at your general savings rates lately, they are most likely around .01% unless they are in an HYSA, then they may be 1% – 2%.
Some other opportunities to earn in comparable investments are currently
12-month CD for a top rate of 3.00%, and average of 0.46%
Money market for a top rate of 2.15%, and average of 0.14%
Savings account for a top rate of 2.21%, and average of 0.13%
12-month Treasury of 3.53%
(based on Bankrate.com from September 1, 2022) and Federal Reserve Data from September 1, 2022, gathered by Keil Financial Partners)
This makes the interest earned by I Bonds something worth looking into!
Things you should know about Series I Bonds
There is a maximum limit of $10,000 per calendar year per person.
They are extremely low risk because they are guaranteed by the U.S.
The intent of creation was to help Americans protect their savings from inflation.
The buyer must hold the bond for at least 12 months.
If you sell the bond before five years, you forego the last three months of interest.
There are two parts to the interest earned. A fixed-rate and variable rate is set twice yearly based on the consumer price index. These variable rates are set on May 1 and November 1.
Thus, the investor’s bond rate changes every six months from the date it was purchased.
When should I purchase Series I Bonds?
If you would like to purchase some of these, this can help determine when.
If you purchase during the month of September or October (by October 28), your bond will earn interest at the rate of 9.62% for the first six months you hold it, when it will change to the new rate to be announced on November 1 for the next six months.
Current predictions are coming in between 6.1% and 7.1% for the rate announcement on November 1.
If you wait to purchase after November 1, when the rates drop, you would get that rate for your first six months. The next rate will be set on May 1, and if inflation drops (as our country is working to make happen), you would get lower returns for waiting to purchase.
Also, to get a full year of gains at the discussed “guaranteed” rates, you would need to plan to hold for 15 months, three of which would gain the interest of 0% (unless you keep them for five years).
What is the worst-case scenario for purchasing Series I Bonds now?
The worst-case scenario is you earn 9.62% interest for the six months after you buy your I bond, followed by 0% after that. Your $100 would turn into $104.81 six months later and still be worth $104.81 at the end of month 12.
If the rate 12 months from now is not to your liking, you could cash out your I bond in 12 months, lose the 3 months prior interest (which would be 0%), and still have $104.81.
That’s a 4.81% rate over the next 12 months!
You’re likely to earn more than 4.81% over the next 12 months, though.
There have been 49 announced inflation rate adjustments since I Bonds started in September 1998, and only 2 have been negative!
Yet even when the inflation rate was negative, I bond interest never went below 0.0%!
Imagine if there was a 12-month CD paying 4.81% right now! That’s how you could view your September I bonds purchase. And, it’s very likely you would earn more than that over the next year.
(figured by Keil Financial Partners)
Should you invest in I Bonds right now?
Not if it means putting some of your emergency funds in them.
You would never want to lock in your emergency fund for 12 months. You would also not want to make yourself cash-poor, which puts you in a predicament of making poor financial moves if an emergency arises.
If your emergency fund is fully stocked and you are holding money for a financial goal 1-3 years away because CDs are currently very low interest, then I Bonds might be the right opportunity for you.
How do I invest in Series I Savings Bonds?
Go to the government website Treasurydirect.gov .
Click the link How to Buy Series I under the column for individuals.
You can read more about them here. Then you will need to go to the link to purchase electronic bonds at the TreasuryDirect program. Set up your account and purchase from there. You can even watch this video on how to set up an account.
Can kids hold Series I Bonds?
The good news is that kids can own Series I Bonds. However, a few things need to be in place for this to happen.
For individuals to hold Series I Bonds, they must be one of the following: a United States Citizen, a resident of the United States, or a civilian employee of the United States, no matter where they live.
For electronic bonds in TreasuryDirect. A child may not open a TreasuryDirect account, buy securities in TreasuryDirect, or conduct other transactions in TreasuryDirect. However, a parent or other adult custodian may open a TreasuryDirect account that is linked to the adult’s TreasuryDirect account, for the child. The parent or other adult custodian can buy securities and conduct other transactions for the child, and other adults can buy savings bonds for the child as gifts.
For Paper bonds. Adults can buy bonds in the name of a child.
Think about it, but don’t delay.
Think about purchasing a Series I Bond as part of your saving and investing strategy this Fall. However, don’t think too long because October 28 will be here before you know it and you will miss out on the current high rate of 9.62%!
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