This month’s new I bond purchases have made better progress on two key fronts.
First, the Ministry of Finance stated that the annualized yield of the new I bonds purchased as of April is 5.27%, which is higher than the 4.30% annualized yield of the I bonds in effect since May. declare This month.
Second, these I Bonds have a fixed interest rate of 1.30%, up from 0.9% over the past six months, and that rate will be added to the I Bond inflation rate, which changes every six months. The fixed interest rate applies for the life of the bond.
So the new reset rate is still a good return for savers looking for a super-safe investment over the long term.
“What’s really attractive about the new I-bond composite rates is the fixed rate. That’s the highest it’s been since 1.2% in 2007,” said Ken Tumin, senior industry analyst at LendingTree and founder of LendingTree. DepositAccounts.comtold Yahoo Finance.
He added: “This fixed rate will ensure that the I Bond you buy in April will earn a return of 1.30%, which is 1.30% above inflation. There are few risk-free savings products that can guarantee returns above inflation. . “The next 30 years.” “
What bond am I?
An I-bond is a type of U.S. savings bond, a debt security issued by the U.S. Treasury Department. Savings bonds are issued in Series EE or Series I, the latter being I bonds.
The main appeal of I-bonds: They are government-backed and guaranteed to keep pace with inflation because their returns are tied to the Consumer Price Index (CPI), the government’s official measure of consumer price growth.
The bonds were all the rage two years ago amid soaring inflation, with annualized interest rates rising to 7.12% in November 2021 and a record 9.62% in May 2022. Since then, annual interest rates have fallen as inflation has been contained.
The new interest rate on I bonds is set by the Treasury Department in May and November each year. Due to adjustments twice a year, the date you purchase an I Bond determines your return.
The I bond rate is composed of a fixed rate applied to the bond’s 30-year term and a semiannual inflation rate calculated based on a formula that adjusts for all non-seasonally adjusted six-month changes in CPI. Urban consumer-owned items.
I Bonds have a fixed interest rate of 0% in November 2021 and May 2022 (when interest rates spike). Last November, the fixed rate rose to 0.4% for those who bought bonds in April. It rose to 0.9% in May.
At the same time, the new I-bond composite interest rates are comparable to those offered on today’s certificates of deposit or CDs — 5% or just over 5% for online banks with a maturity of about one year. The interest rates on 3-month and 6-month Treasury bills have also been floating around 5%, while the yield on one-year Treasury bills has been above 5%.
Investment I Bonds
These bonds can be purchased in shares of $25 or more when you purchase bonds electronically from the U.S. Treasury website, fiscally direct,free. Paper bonds are sold in five denominations: $50, $100, $200, $500 and $1,000.
Normally, you cannot purchase more than $10,000 in I Bonds per calendar year. There are several ways to increase this amount. For example, you could use your federal tax refund to purchase an additional $5,000 of I Bonds.
This interest is generally exempt from state and local taxes. If you qualify, you may also avoid some or all federal income taxes when you use savings bond interest to pay for higher education or state tuition at a qualifying institution. Scheduled for the same calendar year in which you redeem your qualifying I Bonds.
Some limitations to keep in mind: While the I-Bond has an interest term of 30 years, or until cashed out, whichever comes first, you can’t cash out until one year later. If you cashed out before five years, you would have lost three months of interest.
However, for those who can be patient and wait, “after five years of holding, I-Bonds make a perfect emergency fund,” Tumin said. “The higher the fixed rate, the better.”
While it’s not a get-rich-rich investment, investors who bought these far-from-slick bonds in 2021 and 2022 when I-bonds were at all-time highs have been rewarded. For example, if you purchased an I Bond in October 2022, your six-month yield would be 9.62%, and then your six-month yield would be 6.48%. The average one-year return is approximately 8.05%.
However, the new rates and stronger fixed rates do bring some shine to any new purchase.
“This fixed-rate bond protects your savings from the effects of inflation and protects you from the effects of deflation,” Dave Enna, founder Tipswatch.comA blog that tracks inflation-protected investing told Yahoo Finance, “You will never lose a penny of your accumulated principal, and your investment will not be affected by market fluctuations.”
Kerry Hannon is a senior reporter and columnist at Yahoo Finance. She is a workplace futurist, career and retirement strategist, and the author of 14 books, includingTaking Control Over 50: How to Succeed in the New World of Work” and “You’re never too old to be rich.” Follow her on Twitter @kerryhannon.
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