What The New I Bond Interest Rate Means For This Valuable Inflation-Proof Investment
Over the last several months, we've spent a lot of time talking about I Bonds, and for good reason:
Inflation-adjusted interest rates help keep pace with rising living costs.
I bonds are backed by the U.S government, making them low-risk investments and an excellent supplement to your cash reserve.
Unique strategies like gifting, business income, and trusts make it possible to surpass the $10k annual limit.
I Bonds can be a powerful savings tool for retirees, especially in the wake of unprecedented inflation. Now that we have new I Bond inflation-adjusted interest rates let's talk about what it is and how it could impact you.
A Recap On I Bonds
Series I Bonds are inflation-protected securities offering a valuable investment respite from record inflation.Because I Bonds are government issued and non-marketable, they are low-risk investments with the potential for healthy returns. These bonds offer two types of interest: fixed and variable.
Fixed Interest Rate: When the U.S. Treasury Department issues your I Bond, it establishes a fixed interest rate for the life of the bond (up to 30 years). They announce the newest fixed rate once every six months, in May and November, and that rate applies to all bonds issued in the six months following their announcement.
Variable Interest Rate: This rate is also adjusted every six months. The current rate when you purchase a bond will apply for six months from the date of purchase, then be adjusted every six months thereafter.
Each individual can purchase up to $10,000 in electronic I Bonds annually, so married couples could buy $20,000 for their household.If you wish to exceed this limit, you can purchase an additional $5,000 when submitting your paper tax return. But as you know, there are creative ways to skirt those limits.If you want to buy more, one of our favorite strategies is gifting I bonds to another person, like your spouse. To do so, you can purchase more I bonds and store them in an electronic “gift box.” Interest keeps accumulating at the rate when you purchase it, so if it's high, take advantage now. Then, you can gift the I bonds to a spouse, for example, in years when they don't purchase up to the annual limit or when rates decrease.When purchasing I Bonds, be sure you won’t need access to the money for at least a year. The minimum holding period for I Bonds is 12 months, but it’s ideal to hold onto your bonds for a minimum of 5 years—if you withdraw before year 5, you forego 3 months of interest.Now that we’ve reviewed the basics of I Bonds, let’s examine the most recent fixed and variable interest rates.
I Bonds Today
What's happening in the world of I Bonds?Since the current fixed and variable interest rates change every six months, it’s essential to stay up-to-date.For the past two years, the fixed interest rate has remained at 0.00%. But not to worry! The real benefit to purchasing an I Bond is the inflation rate, which, as you can imagine, has increased significantly in 2022. In May, the Treasury Department increased the I Bond inflation-adjusted interest rate to 9.62%. But as of November 1st, that rate has changed. The new composite rate for I bonds purchased now through April 2023 is 6.89%. The Treasury Department breaks it up into the following:
Fixed-rate (for the life of the bond): 0.40%
Inflation rate: 6.48%
While the rate is lower than the last two cycles, it’s still the third-highest rate in I bond history.The incredible earning potential of Series I Bonds has led to a significant uptick in their popularity.Just how popular are I Bonds?A couple of days ago (October 28), the TreasuryDirect website crashed as investors clamored to lock in the last days of the 9.62% interest rate, resulting in $929 million in sales over one day!With inflation expected to continue for the foreseeable future, these bonds will likely continue to surge in popularity.
How Does This Change Impact You?
The new variable interest rate will apply to any I Bonds you already own, and if you haven't purchased up to the annual individual limit, you can do so.There’s arguably never been a better time to use this powerful savings tool, so if you can, consider maxing out. Remember, you can’t purchase electric I Bonds jointly, so your spouse would have to set up a separate Treasury Direct account and each purchase up to the $10,000 limit.Some tools can help you stay up-to-date on your earnings for existing I Bonds.For electronic I Bonds, you can look up the current rate on your TreasuryDirect account. But, if you have a paper bond, you can use the official Paper Savings Bond Calculator to see how your money will grow during the current period.Remember that while the government announces the new rates in May and November, the date when your rate changes is 6 months from the issue date. So, if your bond is issued in January, it won’t be due for a rate adjustment until July.
Keep Fighting Inflation
Inflation will likely be one of the most memorable aspects of 2022, and it's important to insulate your retirement portfolio and safeguard your savings.I Bonds can be excellent low-risk vehicles for building up your cash reserve and keeping pace with inflation.Partnering with one of our advisors can help guide you through the complex financial maneuvers to make the most of your money despite inflation. We would love to help get you started on your financial journey. Reach out today.
