Good morning, it's 3 am, and I’ve been up for a few hours. You would think that I should be sleeping pretty well. Considering we just bought a fancy new bed. I consider the purchase investing in our health, and so far, it's been a great investment. If you can afford it, I highly recommend an adjustable bed. Unfortunately, my brain never shut down last night, so here I am about to share with you the safest way to earn 9.62% on your money through U.S. Treasury Series I Bonds.
Most people tend to forget about the opportunity to earn a decent yield through government-issued bonds. I’ve even forgotten about them, and I’ve been spending a lot of time researching ways to diversify our investment portfolio. I suppose that is because investments such as I Bonds aren’t as sexy as cryptocurrency and other alternative investment strategies.
What are I Bonds?
I Bonds are U.S. government-issued bonds that pay a combined interest rate made up of a fixed rate and a rate meant to hedge against inflation. Which makes them perfect for the current economic environment.
They are issued either electronically or in paper form and can be purchased directly from the Treasury at treasurydirect.gov.
To get started, you will need to create an account. Be prepared to include your personal information and banking information to make a purchase.
The bonds are issued in increments as small as $25, with the maximum an individual can buy is $10,000 per year (electronically or $5k in paper bonds). Keep in mind a household could buy more. For example, each spouse could buy $10k in I Bonds annually. You can even purchase them for a minor.
The current rate on Series I Bonds is 9.62%. However, that will change as the rate gets reset each October.
You will need to plan on keeping your bond(s) for at least a year. You can cash them out anytime thereafter. However, if you do so before five years, you will lose three months’ interest.
Why are I Bonds so safe?
This is one of the safest investments you can make. Because I Bonds are issued by the U.S. government, there is as close to zero chance of default as you can get on an investment. The reality is that if the government defaults on its bonds, then we have a lot larger systemic issues to worry about, and your $10k investment will more than likely be one of the last things on your mind.
How I plan to use my I Bond purchase(s)
Earning a 9.62%, or similar, rate of return is pretty hard to beat. Particularly with the stock market as volatile as it has been.
I Bonds are meant to help hedge against inflation. However, the $10k per person per year limit reduces your ability to hedge at a larger rate.
Still, purchasing I Bonds can work great. One way I can see using an I Bond in an investment portfolio is planning for a vehicle purchase for a child. If the rate stayed at the current rate, you could invest $10k and have $15828.84 in five years. Over a ten-year window, you’d have over $25,000.
On a personal level, we don’t have that long before we will have to buy our daughter a vehicle. We have about a year to go. The good news is that I’ve already planned for that purchase.
Still, I plan to start making annual purchases of I Bonds if the rate remains competitive. It’s just one way to offset some of the inflationary costs I am seeing, and a 9%+ rate with nearly zero chance of default is hard to beat.
If you have any questions about I Bonds or other financial questions, I'd be honored to help you.
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