|With inflation at highs we haven’t seen since the early 1980’s, government issued “I Bonds” have been a hot topic. We want to provide everyone with a general overview of how they work.|
An I Bond is a savings bond that earns interest based on combining a fixed rate and an inflation rate. The fixed rate (which is currently 0%) is fixed for however long you hold the bond and the inflation rate (currently 9.62%) can change twice a year based on when you purchased the bond. This means that I bonds are currently paying 9.62% annual interest through this October 2022. The interest is compounded and is added to the principal semiannually. The interest rate on the bond can never go below 0%. Individuals can purchase a maximum of $10,000 total in a calendar year. You can also buy an additional $10,000 through estates, businesses, and trusts per year.
I Bonds earn interest for 30 years unless you cash them out. They do lack liquidity to some degree. You can cash I Bonds out after 1 year. However, if you cash them out before five years, you will lose the previous three months of interest. (For example, if you cash an I Bond after 18 months, you get the first 15 months of interest). Like all government issued bonds, it is exempt from state and local taxes but is taxed at a federal level.
Unfortunately, we can’t buy I bonds for clients as they are issued by the US Treasury and must be bought directly through them. You can go online and invest yourself using the link below. This could be a great option in leu of the money market rates at your local bank or credit union for cash you may have in excess of your annual cash needs and emergency fund. You can buy new Series I bonds at the rate of 9.62 percent through October 2022. Remember, there is the max amount of $10,000 per person, per calendar year.
Advisory Products and Services offered by Investment Advisor Representatives through Avaii Wealth Management, a Registered Investment Advisor. Securities offered by Registered Representatives through Private Client Services, LLC. Member FINRA/SIPC. Avaii Wealth Management and Private Client Services are unaffiliated entities.