I Bonds: How to lock in a 9.6% guaranteed return from Uncle Sam
Want to turn inflation to your advantage?
To be a financial winner when everyone loses to inflation?
Today I’m going to show you a little-known investment that can do just that for part of your portfolio.
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Best of all… it’s backed by the US government.
You’ll want to act on this soon. Because inflation is only getting worse.
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On July 13, the government released the latest figures…
Inflation jumped to 9.1% (!) in June.
This is a new 40-year record:
Source: CNN
High inflation, like RiskHedge readers know, is bad for almost everyone and everything.
The wealthy are seeing their portfolios of stocks, bonds, and crypto shrink. The poor are seeing their grocery and gas bills skyrocket while their credit card rates soar.
The middle class is squeezed by both.
The good news is that inflation predictors look better “below the surface”. Government inflation figures are slow. They don’t take into account what’s happened over the last few weeks… Like the recent drop in energy and gas prices. From MarketWatch:
About half of the rise in inflation last month was energy-related. The price of a barrel of oil hit $122 in June, and the average cost of a gallon of regular gasoline in the United States topped $5 for the first time ever.
Yet the price of a barrel of oil has since fallen more than 20% to around $95. And the cost of regular gasoline has dropped to a US average of $4.64 a gallon – and it’s likely to come down a bit more.
And recently, RiskHedge chief trader Justin Spittler explained why recent price action in commodities and US Treasuries suggests inflation is peaking.
So, relief is probably on the way. But there’s still time to lock a 9.6% guaranteed return with a unique savings vehicle that everyone should seriously consider today.
I Bonds
- I’m talking about “I Bonds”…
Series I bonds are special inflation adjusted bonds issued by the government. Any US citizen can buy them to earn a big return.
They’ve been around since 1999. But they’ve never paid as much as they do now, thanks to inflation. Looked:
As I mentioned, the current rate is 9.6%, which is locked in for the next six months if you buy today.
On an investment of $10,000, you will receive at least $481 in interest for the next six months.
Not bad considering that the current rate for a 1-year CD is 0.52%, while the average APY for a money market account is 0.08%.
Now, it is important to note that the Series I bond rate will change in October depending on inflation. That’s why you’ll soon want to lock in your 9.6% return if you’re interested.
The catch
- There are a few things you need to know before buying Series I bonds…
The biggest “hiccup” is that you can only invest up to $10,000 per calendar year.
However, you can invest an additional $10,000 for your spouse and each of your children. So if you have a family of four, you can invest $40,000 right now. Then $40,000 more on January 1, 2023.
Of course, you don’t need that much money to get started…you can buy an I Bond on the US Treasury website with as little as $25.
I Bonds are also tax efficient. You do not owe interest taxes until you sell the bonds. And interest income is exempt from state and local taxes. This is a major advantage if you are in a high tax state like New York, California or New Jersey.
Finally, and perhaps most importantly:
There is a minimum holding period of one year.
So don’t park your emergency money in these. Because you can’t access it for a year.
After one year, you can redeem your I Bonds at any time. But if you cash them before five years, you lose the previous three months of interest.
I Bonds are the best way to grow your money essentially risk-free and beat inflation today.
You can buy the bonds directly from TreasuryDirect.gov. The website will walk you through the steps to get started.
It’s easy, but fair warning: TreasuryDirect is an old and clunky government website. So expect to face some minor annoyances.
But several of us at RiskHedge have opened accounts and purchased I Bonds for our families, and had no problems.
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Article by Chris Reilly, Mauldin Economics
Updated