With inflation increasing at record high rates, our clients are looking for ways to counteract their diminishing dollar. With most traditional bank accounts yielding less than 1%, conventional savings options are not very compelling considering an over 9% inflation rate.
Economists have been calling I-Bonds America’s best-kept investing secret. Here are seven things you need to know about this investment
What are I-Bonds and how do they work?
An I-Bond is a bond backed by the federal government and earns interest monthly from the first day of the month of the issue date. The I stands for Inflation. The higher the inflation rate the higher the I-Bond rate.
Are buying I-Bonds an effective way to protect cash from inflation?
In April 2022, the I-Bond were paying out 7.12% in interest, And, like all U.S. savings bonds, they are a safe investment, as investors will not lose their initial investment. Inflation kept increasing. On July 1, 2022, the I-Bond rate was 9.62%. I-Bonds can be purchased thru Treasury Direct at this rate until October 2022.
Are there limits to I-Bonds?
These bonds are like other bonds, as there are limits on how many each person can buy annually. In 2022, you can purchase $10,000 in a 12-month period. Consult with your accountant or tax advisor to see about being able to purchase another $5000 in paper bonds with your tax and if this investment is right for you.
What are the disadvantages of I-Bonds?
Once you buy an I-Bond your money is locked in for a year. If you cash out your I-Bonds in the first five years you will lose the last three months of interest. Once the I-Bonds are cashed you will need to pay federal income taxes on the interest.
Know the fine print
While bonds are a safe place to let your cash earn higher interest than most financial institutions this year, there are a few rules to follow. First, you are not allowed to cash them in during the first year. And, if you cash them in during the first five years, you lose the last three months of interest. They have a full term of 30 years.
How do I know if I-Bonds are right for me?
There are pros and cons to all investments. To see if I-Bonds are right for you and your specific financial goals, contact your WealthMD advisor.
How do you buy an I-Bond?
I-Bonds are an investment from the federal government, therefore you will have to purchase them yourself from the Treasury Direct website. Your WealthMD advisor is not able to purchase them for you. Your advisor is happy to answer any questions about the bonds and give you advice on if this investment is right for your specific goals. The purchase of the bonds will have to be done by you. I-Bonds can be purchased in two ways. First, you can buy them electronically via the TreasuryDirect with a limit of $10,000 per person. You can also purchase them in paper form with your federal tax refund, enabling you to purchase another $5000 in bonds.
Still have questions, we can help. Contact your WealthMD Advisor today.