Sorry, I Bonds Won't Make You Rich.
and I am tired of reading that it will
Those of you who work in the financial services sector are undoubtedly weary of hearing about these. If you don't, don't worry; I'll explain it so you can tell your Fox News-loving uncle about it when he phones you the next time he's in jail after invading the capital and needs legal/ financial advice.
First, I Bond: What Is It?
An I bond is a Series I Savings Bond that is frequently employed as a hedge against inflation. An I Bond's rate of interest is influenced by two key factors:
- a fixed rate
- an inflationary rate
First we will talk about what the fixed rate is. As you might have guessed, it is just that. It is fixed. The fixed rate is a predetermined rate is offered on May 1 and November 1. All issuances of I bonds are thereafter subject to that fixed rate for the following six months. Bonds issued between November 1, 2022, and April 30, 2023, are currently priced at 6.89%.
And to be honest, that rate is nothing to sneeze at when compared to the S&P index's decline of -18.11% over the previous 12 months ending on December 31, 2022.
Ok, Why Can't I Become Rich When I Bond Returns Are So High and Inflation is Seemingly Going On Forever?
Yes, you are correct. The effects of inflation do seem to be everlasting as of this article's publication. Though I wouldn't go that far because the government wouldn't ever intentionally mislead its citizens, it almost seems like inflation was never transitory, but I'm getting off topic; so, let's return to the question. Simply put, these bonds have restrictions, so you won't get rich quick. An Employer Identification Number or Social Security Number can only be used to make purchases totaling $10,000. There is a $10,000 maximum, but you can specify the exact amount to the penny with that kept in mind as the ceiling. The floor is much lower and any amount from $25 to $10,000 can be used to purchase an electronic I bond.
Also, keep in mind that these must be held for at least a year and that if you redeem the bond before 5 years, you forfeit the last 3 months of interest. The first 16 months of interest, for instance, are paid out if you redeem the bond after 19 months.
But, Are They Still a Good Investment?
In a nutshell, yes. Diversity is key, and having I Bonds can help you to stay diverse when combined with other equity investments. What is nice about these specifically is on the first of the month after your purchase, I bonds begin to earn interest. The bond's principal is increased semi-annually by the interest earnings, which are added every six months. The Series I savings bonds, which are backed by the U.S. Treasury, are viewed as a relatively safe way to earn a high return on your extra cash because your money won't lose purchasing power because the bond's interest will climb at a rate that is about equivalent to the rate of inflation. There is danger associated with every investment, though. The initial yield only applies for the first six months that you buy the bond because interest rates can change depending on the Fed's monetary policy actions.
Ok, So, How Do I Purchase Them?
Visit the US Treasury website if you want to purchase bonds as this is the only place to get them. I tried to embed the link, but was unable to, so you poor souls will have to copy and paste it like savages.
Once there, to buy a savings bond in TreasuryDirect:
- Go to your TreasuryDirect account.
- Choose BuyDirect.
- Choose whether you want EE bonds or I bonds, and then click Submit.
- Fill out the rest of the information.
All information that provided is for informational purposes only and should not be construed as an offer or solicitation of an offer to buy or sell securities. Furthermore, investing in securities involves substantial risk of loss and investors should seek advice from financial professionals before investing.
I am not in the business of stock brokerage, investment advice, or activities which require registration under either the Securities Act of 1933 or the Securities and Exchange Act of 1934, underwriting, and I am not an insurance company or agent, nor do I offer services which may require regulation under federal or state securities laws. Please consult your registered financial advisor regarding your investing concerns.
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