How would you like to earn 9.62% virtually risk-free on some of your money over the next 6 months & probably close to this amount virtually risk-free for another 6 months? Too good to be true?
Believe it or not, the Series I US Government Savings Bond (I Bond) is offering an initial interest rate through October of 2022 of 9.62%. Yes, you read that right. 9.62%!
These bonds were introduced in 1998 & this is the highest inflation rate the bonds have earned since then. The highest in 24 years! Wow!
The reason I say “virtually” risk-free is because the US is not likely to default on its debt. These are backed by the full faith & credit of the US government. Treasuries are considered some of the most conservative investments out there. Much like a High Yield Savings Account.
The I in these Series I Bonds stands for inflation. These bonds adjust with inflation. As inflation rises, the interest rate rises and as inflation falls, the interest rate falls.
These I Bonds were created to give investors a way to hedge against inflation. Because inflation is high right now, the returns on these bonds are correspondingly high.
Here are some of the details:
- There is a purchase limit of $10,000 per person per year (you and your spouse could each purchase $10,000 worth). And an additional $5,000 from your tax return if you wish.
- The rate changes every 6 months. You know your first 6 months will be 9.62% but you’ll have to wait until November to find out your rate for the next 6 months.
- You are locked in for 12 months. You can withdraw after that time. If you withdraw before 5 years have passed, you lose the last 3 months of interest (even if you withdraw early, it’s still likely a great return on your money).
- You don’t get your interest payment until you redeem the bonds.
- You can also have businesses you own invest in these bonds. And you can buy them for your children as well.
- These will earn interest for 30 years or until you cash them in.
Here’s an example:
- You buy $10,000 in I Bonds in May 2022. You earn 9.62% in interest for the first 6 months. They recalculate the interest rate in November and let’s say they set the rate a little lower at 8.5%. It could be the same or higher than the 9.62%, but who knows, so we’ll go lower.
- In the first 6 months, you’ll make $481 ($80.17/mo). In the next 6 months you’ll make $425 ($70.83/mo). Total earned = $906.
- Let’s say you want to withdraw after 12 months. You’ll lose your last 3 months of interest = $70.83 x 3 = $212.49 (you won’t lose this if you keep it at least 5 years).
- $906 - $212.49 = $693.51
- Even if you lost 3 months worth of interest, $693.51 earned off $10,000 invested is a 6.94% return. Compare that to your interest-bearing checking account or High Yield Savings Account. Probably at least 7x greater with virtually no risk!
This is a great, low risk way to earn a great return on some of your money over the next year!
You can read more about the I Bonds here.
