I Bonds Stocking Stuffers

For me, it happens around tax time when I’m collecting all my tax forms.  I scramble to find my 1099-INT for our main checking account before I remember that our checking account earned such an embarrassingly low amount of interest that the bank didn’t need nor bother to send out the tax form.

Does this sound familiar?

In the news, I hear the term “living wage” now and again as two pundits volley comments back and forth about the need to raise the minimum wage.  No one ever brings up a “living rate” which I would define as a reasonable, risk-free rate of interest you can earn on your money as it sits idle waiting for its day to be spent or put to another use.

Today, I don’t have the silver bullet, but I do want to take a few lines to educate you on one of the options to earn a little bit more on your hard-earned savings.  This option comes in the form of a US  government-issued bond called the series “I Bond.” I bonds have been around for a while, but like most bonds, their interest rate has not really been that noteworthy.  The interest you earn on your I bond is calculated in two parts.  The first is a fixed interest rate, currently 0% and the second fluctuates and is based on the past 6 months of inflation.  This second rate gives bonds issued today an annualized interest rate of 7.12%!!!  This rate is locked in until April 2022 when the rate will adjust again.(3.56% for next 5 months)  This week I’ve read news of 40-year high inflation and the Federal Reserve anticipating raising interest rates three times in 2022.  This leaves us with the possibility of another above average interest rate from April 2022 until October 2022.

Now before you go selling all your jewelry to invest in I Bonds, here are the important notes:

  1. I Bonds can only be purchased through the Treasury Direct website once you’ve set up an account. (LINK HERE) That’s right, you need to set up yet another account to make this happen.
  2. You can only buy up to $10,000 worth of I Bonds, per person, per year.  However, this close to the end of the year, a married couple could quickly deploy $20,000 for 2021 and then another $20,000 after January 1st for 2022 to get $40,000 to work.  (Aside – you can buy I bonds as gifts and you can buy up to another $5,000 of paper I Bonds with your tax refund.)
  3. You can redeem your I Bonds (they are 30-year bonds) after 12 months.  Between 12 months and 5 years there is a 3-month interest penalty and after 5 years you can redeem at no penalty.
  4.  My favorite part about I Bonds is that while the bond is earning interest, the interest is tax deferred. This means that not only did you earn more money, but you also don’t even have to look for that 1099 tax form until you redeem the bonds.

In this yield-starved environment, every half of percent can make a difference or, at the very least, make you feel better about your savings.  If you think I Bonds may be a prudent opportunity, please be sure to check out the frequently asked questions page on the Treasury Direct website (LINK)  and send any questions our way.

Happy Friday! Please stay healthy and be safe!

(For compliance, this article if for educational purposes only and should not be viewed as specific individualized investment advice)