This Government Bond is Earning 7.12% Annually Right Now! | I Bonds Explained
In an ever-changing economic landscape marked by rising inflation and fluctuating interest rates, investors and savers are on the lookout for safe and attractive investment options. One such tool that has gained considerable attention lately is the U.S. Series I Savings Bond, or I Bond, which is currently offering an impressive annualized interest rate of 7.12%. But what exactly are I Bonds, and how do they work? In this article, we’ll dive into the features, benefits, and considerations of investing in I Bonds.
What Are I Bonds?
I Bonds are a type of U.S. government savings bond designed to protect investors from inflation while providing a safe place to grow their money. They were introduced in 1998 and are issued by the U.S. Department of the Treasury. I Bonds earn interest based on a combination of a fixed rate and an inflation rate, which is adjusted every six months. This unique structure makes them particularly appealing in times of high inflation.
How Interest is Calculated
The interest on I Bonds is composed of two parts—a fixed rate and an inflation rate. The fixed rate remains the same for the life of the bond, while the inflation rate is recalculated every six months, affecting the bond’s overall yield.
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Fixed Rate: This portion is set when you purchase the bond and stays the same throughout its thirty-year lifespan.
- Inflation Rate: This is determined twice a year based on changes in the Consumer Price Index for All Urban Consumers (CPI-U). It reflects the rate of inflation and makes I Bonds especially attractive to investors concerned about their purchasing power.
Currently, the combined rate for I Bonds stands at 7.12%, making them a standout investment, especially when compared to traditional savings accounts or even many other types of bonds.
Why Invest in I Bonds?
Investing in I Bonds comes with several compelling benefits:
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Inflation Protection: Unlike most fixed-income investments, I Bonds are designed to keep pace with inflation. As the cost of living rises, the interest earned on I Bonds increases, preserving the purchasing power of your investment.
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Safety: I Bonds are backed by the full faith and credit of the U.S. government, making them one of the safest investment options available.
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Tax Advantages: Interest earned on I Bonds is exempt from state and local taxes and can be deferred from federal taxes until the bond is cashed or matures.
- Flexibility: Investors can buy I Bonds in amounts ranging from as little as $25 to $10,000 per individual per calendar year. Additionally, they can be purchased online through the TreasuryDirect website, making the process easy and accessible.
Considerations When Investing in I Bonds
While the benefits of I Bonds are appealing, there are some important considerations to keep in mind:
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Liquidity: I Bonds must be held for at least one year before they can be redeemed. If you redeem them before five years, you’ll forfeit the last three months of interest.
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Purchase Limits: Each individual can only purchase up to $10,000 in electronic I Bonds per year, along with an additional $5,000 in paper I Bonds when using your federal tax refund.
- Fixed Rate Risk: The fixed rate component, which locks in when you buy the bond, may be lower than other savings or investment products. If interest rates rise significantly in the future, your I Bond’s fixed return may not be as competitive.
Final Thoughts
With an attractive annual yield of 7.12%, I Bonds present an appealing investment opportunity for both seasoned investors and those new to the market. The combination of inflation protection, safety, and tax advantages makes them a unique and worthwhile option for preserving wealth in uncertain economic times. However, be sure to weigh the investment’s liquidity restrictions and purchase limits against your personal financial goals.
As always, it’s wise to consult with a financial advisor to ensure that any investment aligns with your individual needs and risk tolerance. Whether you’re looking to enhance your savings strategy or simply want a safe haven for your cash, I Bonds may just be the solution you’ve been looking for.
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thanks for all your clips; clean, clear, informative; hi tech w/ all the graphs; nice pace and audio. Superb presentation; thanks for making them.
What’s the rule on converting Trad. Savings bonds that have matured after 30 yrs as for converting that entire balance to perhaps an I Bond or another bond and is that a good idea?
run thru the calculation on the upcoming change in rate based on an CPI-W
Eric, the interest from these bonds is IRS taxable, so it does not add separately as Tax- exempt interest income towards MAGI calculation for IRMAA purposes? – correct?
(I Think it would add to the MAGI calculation if that interest income was used to pay for higher education tuition in the year Realized.)
So investing in a ibond that is not fix and waiting more than I year or so I only pay 5% of penalty or so. I will be a good investment than cd ?
Do you only reap the interest rate at the time of your point of sale of your bonds? Or are ibonds accumulating/compounding interest over time like a CD? For example If I bought a $10k 7% bond and then sold at year 6 and in year 6 bond rates are then only 1%, do I only walk with $10k + 1% (regardless that I purchased at 7% at the beginning)?
Perhaps you can go into more detail about the interest rate.
I don't understand how they are paying 7.12% since the Semiannual inflation rate is only 3.56% and the fixed rate is 0%.
If a bond pays 3.56% for 6 months that is not 7.12%. If the same bond after 6 months also pays 3.56% that is not 7.12%, it is still only 3.56%.
So where do they get this 7.12% number from?
It's a great cash and savings account alternative. We've been in a banking environment where money market savings and almost all CDs are paying well under 1% interest. Inflation by year is nearly always over 1%. I Bonds are 99% of the time better than a savings account except they are less liquid since you have to hold the money at least a year with what I consider a very light penalty (that's still better than a savings account) if you redeem before 5 years. If you're saving a long term emergency fund, I Bonds are better than a bank account. If you're saving for a car or house downpayment and you want to avoid the risk of short term investing in stocks and traditional bonds, I Bonds are a great option. You'll never lose money, you'll always keep up with inflation, and you'll always beat the interest earned in a money market savings account or CD.
If I have 3 million dollars most likely I’m not watching this.
What you earn on ten grand in six months isn't going to change your life! Who knows what the rates will be then? I remember back in the eighties earning 7.5% on my insured certificate of deposit at my local Savings and Loan. Of course with the rampant inflation of the seventies and eighties I was still losing money!
snp at 26% yoy… bonds still suck
Which GOVERNMENT????
Doesn't matter. This administration is not above reproach. The libs have US sovereign credit ratings on negative watch, meaning after we get solidly wedged in stagflation, the Fed will have run out of cards, the negative watch will take us down a notch and the duration of your bonds will shorten along with the government's commitment to pay back principal. If you get any of these bonds get them stripped as (IO's) Interest Only, not (PO's) Principal Only. Zero Coupons are fine because the duration is term certain.
Imagine how much this would earn if they were honest about inflation!
Been doing them for a few years now, way better than CD's. Only drawback is you can only put 10k a year in them.
This vid was made for the special ed students that dont understand crypto and were the worlds financial market is going.
After reading many of the comments, I think many don't understand how you can use these i bonds. I look at them as a fairly liquid (after 1 year) safe savings location for funds that otherwise may have been in cd's, money markets, or regular savings. I don't look at them as much of an overall investment strategy. If money market or cd rates go higher, than I cash and move them.
These I-bonds are just a type of US Savings bond just like EE-bonds are US Savings bonds. In your discussion I was confused about the calculation of the yield on these bonds because you didn't point out that the calculation of the 6-month interest rate is actually TWICE the inflation rate. The inflation rate for the current bond yield is 3.56% which is DOUBLED to calculate the 6-month yield of 7.12%.
If you buy one $10,000, and then forget you bought one and go and buy another the software will let you. but then you get a not too nice email from the Gov telling you its illegal and you have to do some back peddeling. Keep a record of your purchases if you are old and forget easily.
So with 6.80% inflation you can earn .32% on your money? A whole .07% over what the banks pay! Fail!
Anyone that invest anything in the government deserves to lose every penny. The government is without question the worst at money management.
Woohoo! You get .12% more than inflation, sounds great!
Can a couple buy $10,000 each per year? Or is it just $10,000 max per person?
awesome cuz the true rate of inflation is over 7% so you make nothing a year
congratulations
you played yoself
Was there any gov't bond anywhere in the world that outpaces inflation? No. For 2020 inflation stole 40%+ of everything you've ever worked for in dollar terms. And 2020 was so bad for inflation they stopped recording it entirely.
Good video – Can I bonds be purchased within a Roth or Traditional IRA?
Inflation is at 6.8% right now. So your real gains are less than 1/2 a percent.
Don’t buy bonds! Bonds are untrustworthy in our current economic climate.
I’ve pulled all my assets away from any instruments that utilize bonds, including retirement. You should too, do your research China should be all you need to know that bonds are untrustworthy.
Awesome. Inflation only eating away 14% of the USD purchasing power per year, so you’re only losing 7% of your purchasing power per year.
Sorry inflation is in the double digits, around 12% so one will lose in addition you tie your money up with no access.
Not sure if this is right I bought I bonds 20 years ago and they did not mature like they say it does!!!
Great job…question…what amounts would you suggest purchasing bonds at?
Sucks that you can only buy 10k a year
The presentation is limited and therefore all the nuances are not available here. One part of safeguard
is education – and that is done. The production values are what they are, but to prompt a follow up call,
Another benefit to I Bonds: they are not taxed at state and local levels, just at the federal level.
Do you mean annualized 6 month rate. Minimum 1 year holding period with an unknown rate after 6 months. Not a 7 1/2 %.
As we see from China, they could offer you 100%, doesn’t mean you will ever see it!
I believe to get the extra $5,000 in I-Bonds EACH for a couple, you would have to file separately. Not many couples do that. So, from what I've read, it's $5,000 for a couple fling jointly. Again, clarification would be appreciated. Thanks
My understanding is that the $5,000 you can add to your I-bond collection thru your tax refund is limited to $5,000 PER COUPLE. Not $5,000 each. Can you clarify? Thanks