Jeremy Keil updates us on what’s happening with I bonds. Read his April 2022 article on Retirement Daily.
If you’re looking for more interest, US Series I Savings Bonds might be right for you.
With the September 2022 I bond inflation rate of 9.62% (US Treasury), this is 4.81% earned over 6 months. A $100 investment becomes $104.81 in just 6 months.
The September – October 2022 I Bonds current rate of 9.62% is the highest rate every offered and the last day to buy I bonds at that rate is October 28.
What to consider when buying I bonds:
- Compare the 6-month composite rates against 12-month treasuries. You can see that the 6-month I bond rate is an average of 0.31% lower. At an initial rate of 9.62%, buying an I bond in September gets roughly 6.1% more compared to the 3.51% 12-month treasury rate (September 1, 2022).
- You’re must hold I bonds for 12 months (you only know the rate you’ll get over the next 6 months).
Keep these two rates in mind:
- The current rate for September – October purchases and 6-month renewals will be 9.62%
- The rate after that, from November 2022 – April 2023 for purchases and renewals will be determined later.
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What you need to know about I bonds
- An I bond is a US Government Savings bond.
- It carries a fixed interest rate, plus an additional inflation adjuster, so you get an inflation-adjusted real rate of return.
- You have to hold it for a minimum of 12 months. You can’t cash out before then.
- If you cash out between the end of year one and the end of year five, you lose your prior three months interest as a penalty.
- You can only buy $10,000 per person, per year, and you have to do it at TreasuryDirect.gov
I bonds are very interesting right now:
Beginning in 2021, I bonds began offering high yields. For example, in May 2021 the 6-month ‘inflation rate’ of 1.77% was announced (3.54% annualized) and in November 2021 I bond rates doubled to 7.12%. Purchases and renewals from September 2022 – October 2022 have a rate of 9.62%.
How I bonds work
When the US government announces the 6-month inflation rate, you’ll be earning double that amount for half the year. To calculate the annualized rate and to compare it to other rates just double the 6-month inflation rate.
The current semi-annual rate is 4.81%. Your September 2022 I bonds purchase will turn $100 into $104.81 just 6 months later. This is a 9.62% annualized rate.
After six months you’ll get the new six-month rate, and your money will grow by that new rate. If you already bought I bonds, then sometime between May 2022 and October 2022, whenever your semiannual anniversary hits, your renewal rate becomes 9.62%.
The worst-case scenario is you earn 9.62% interest for the 6 months after you buy your I bond, followed by 0% after that. Your $100 would turn into $104.81 six months later, and still be worth $104.81 at the end of month 12.
If the rate 12 months from now is not to your liking, you could cash out your I bond, lose the 3 months prior interest (which would be 0%), and still have $104.81 – a 4.81% rate over the next 12 months.
There have been 49 inflation rate adjustments since I bonds started in September 1998, and only two have been negative. Even when the inflation rate is negative, I bond interest never goes below 0.0%.
When you get your bank statement and see the pennies of interest you are getting, if that, consider how much you can commit to a 12-month interest rate that pays over 4.8%.
Read Jeremy’s full blog here.
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