This is undeniable: I Bonds purchased between May and October pay a six-month annualized yield of 9.62 percent. According to Treasury Retail Securities, to lock in this rate, you must acquire the bonds between now and October 28. If the rate was to hit 10%, consider a simple $10 return on a modest $100 investment. Or $1,000 profit on $10,000. However, it is essential to take the time to comprehend the nuances of I Bonds.
Bonds can be purchased online for as little as $25 at TreasuryDirect.gov. Following the purchase of I Bonds; the high rate would apply for the first six months. For instance, if you purchased an I Bond in September, the interest rate of 9.62% would be applied for six months until the end of February 2023. If you haven’t purchased, I Bonds, it’s still a great opportunity to invest in I Bonds. The startling increase in inflation early in the summer should keep I-Bond interest rates on fire for the remainder of 2022.
Inflation in the United States reached a 40-year high in June when the Consumer Price Index rose 9.1% year-over-year—resulting in the current 9.6% interest rate on the current I Bonds. The rate on I Bonds is set every six months.
Barron’s online website expects that the rate on Treasury I bonds will fall to approximately 6.5% for purchases made after Friday. The new rate will be determined on November 1 and based on the consumer price index from March to September.
The Treasury has stated that individuals must purchase I Bonds by Friday at midnight to receive the 9.6% interest rate. Before then, purchases will be dated October 1, and holders will get an entire month’s interest.
Current purchasers should receive more than 8% in interest over the next year since they will receive 9.6% for the first six months and an anticipated 6.5% for the following six months.
Individuals can purchase only $10,000 in I Bonds every calendar year, although they can obtain an additional $5,000 in paper bonds through tax refunds and an additional $10,000 through certain partnership structures.
I-Bond interest is exempt from state and local taxes, and federal taxes can be postponed until the bonds expire in 30 years or are redeemed, which is a positive characteristic. Investors must retain them for a year and forfeit a quarter of the interest if they are redeemed within the first five years. Interest accrues and is added to the face value of I Bonds rather than being paid in cash.
Treasury inflation-protected securities, or TIPS, are an alternative to I Bonds with a rate related to the CPI index. The advantage of TIPS is that investors receive a real or inflation-adjusted rate of more than 1.5% in addition to the inflation adjustment. Treasury periodically auctions TIPS with maturities of up to 30 years, which can be purchased on the secondary market. I-Bonds currently offer an actual yield of zero. Thus, investors receive only the inflation rate.
Additionally, there are liquid TIPS exchange-traded funds, such as the iShares TIPS Bond ETF TIP +0.60% (symbol: TIP) and the iShares 0-5 Year TIPS Bond ETF STIP +0.20%. (STIP).