Safe Investment with High Interest? I Bonds

Finally, a high-interest rate for your safe money…… for 6 months.

Luckily the high-interest rate is ridiculously high enough that it may just sweeten the pot to make it worth your while.

Enter I Bonds. The I stands for inflation, which is exactly what showed up in a big way to close out the year, which is what creates this unique opportunity.

Here is a really quick summary of how the I Bond works:

• Bonds are issued at known rates every 6 months
• The rate consists of a Fixed Rate (currently 0%) + the Inflation Rate (currently 7.12%!)
• Rates can never be negative
• Rates are updated every 6 months
• Capped at $10,000 per person per year
• 1-year holding requirement
• 3 months of last interest penalty if cashed within 5 years
• 30-year total maturity

Who do I Bonds make sense for?

Since rates can and will likely drop from the insanely high 7.12%, I think it’s good to paint the worst-case scenario. Let’s say when the rate resets in May, (two 6 month periods reset in November & May), inflation falls to 0 or is negative, the rate you receive for the 2nd half of the year is 0%. The average rate you’d receive is 3.56%, which compared to other safe places for your money is an amazing rate. Plus there, is still the possibility that inflation persists in some capacity and your interest rate is higher than the 3.56%

The biggest limitation is the $10,000 cap, but that cap is per person, and per year. It’s still December, which makes the ability to double your I Bond purchases within a few weeks of each other and lock in that high-interest rate.

Assuming you have $20,000 that you can do without for at least 12 months, the minimum interest you’d generate is $730. 

If you are married, you can double that, and if you have children you can also make purchases for them.

So should you purchase an I Bond and lock in a high-interest rate? 

Is the worst-case scenario interest worth the time it will take to purchase and ultimately redeem your I Bonds?

Where can I purchase I Bonds?

In the past, I Bonds used to be issued at banks, but times are a changing and you are required in most cases to purchase them online from https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_ibuy.htm

If you want to take a deeper dive into more in-depth data about this topic, this has a ton of additional info that I attempted to synthesize down for you so it was as concise but still actionable as possible.

https://www.kitces.com/blog/federal-series-i-savings-bonds-inflation-712-composite-rate-treasurydirect-compare-fixed-income-investments/