while flying inflation US savings bonds are considered a safe bet for your investment concerns, as they are fully backed by the government. In October we told you Series I to buy bond To lock in an interest rate of 9.62%, tThat’s because in November, the Treasury Department dialed the yield back to a (still higher!) 6.89%. Many people tried to do this, i bOND web portal basically unusable in late October,
but dDespite this decline, there is There’s a case to be made for why buying Series I bonds now may be better than locking in the previous 9.62% rate.
What are Series I savings bonds?
treasury department Explain that with Series I bonds, you earn both a fixed rate of interest and a rate that changes with inflation (the department adjusts the inflation rate twice a year). ,For a comprehensive primer on what bonds are and how they work in general, see View our previous posts here, Series I savings bond is considered a security inflation. Because bond interest will increase at roughly the same rate as inflation, the purchasing power of your savings will not decrease. And for months, the unusually high 9.62% rate was attractive to many investors.
Although, as As with any investment, these government-backed bonds also come with certain risks. Most relevant right now is the fact that the initial yield is applicable only for the first six months that you own the bond. According to Britannica MoneyAfter those first six months, your bonds act like any other variable vehicle, which means “rates can go down and you have no control over it.” If you wait a few years to buy an I bond, you risk waiting on any bond. The interest rate is below the line.
Why Buy Series I Bonds Now could be better
So, how can the current 6.89% yield beat the previous 9.62%? it comes down to factoring base rate In Eq. In addition to the adjustable inflation rate – the one mentioned above, which is only good for six months – Series I bonds are made up of a guaranteed base rate for the life of the bond. smart property Here’s what this means for new bond buyers:
The bonds purchased between May 2020 and October 2022 all came with a base rate of 0%. The bonds are currently being issued with a base rate of 0.40%. Even if inflation drops to 0%, tO still get a return of 0.40%. This higher base rate means that buyers who get I bonds at 6.89% should be ahead of buyers who lock in at 9.62% after about four years.
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What this essentially means is that as long as you hold the bond for at least 4 years before cashing it out, you will outperform investors who bought the bond at a higher rate – provided you can expect future returns of 6.89%. Invest before the rate comes down.
takeaway
Backed by the US Treasury, Series I savings bonds are considered a relatively safe way to see higher yields on your investments. However, keep in mind that once interest rates fall, you cannot easily sell the bond. You are completely locked out for the first year you own the bond; After that, there’s still a three-month interest penalty if you sell before five years. If you think you’ll need access your money before five years have passedyou are Better off with a short term savings vehicle,
If you are interested in buying bonds, go to US Treasury website, For the rest of the process, follow this step-by-step video lecturer Which guides you in buying bonds. More information about bond rates and how they are calculated can be found at HereWhile a historical chart of each bond’s entire history is published Here,