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If you’re looking at ways to combat rising prices, I-bonds, an inflation-protected, almost risk-free asset, could be even more attractive.
I-bonds are paying an annual rate of 9.62% until October 2022. This is the highest yield since it was introduced to the US Treasury in 1998. Announced on Monday..
The hike is based on March consumer price index data, Annual inflation rate increased by 8.5%Reported by the US Department of Labor.
“This is a milestone for me to issue bonds,” said Ken Tumin, founder and editor of DepositAccounts.com, who closely tracks these assets.
Private bonds, backed by the US government, earn monthly interest without losing value, based on two parts: fixed and floating rates that fluctuate every six months.
By October 2022, the volatility is 9.62%, but the fixed rate remains 0%. According to the Ministry of Finance..
The fixed interest rate remains the same for the 30-year validity period of the bond. In short, Tumin explained that anyone who buys I bonds at a higher fixed rate could overcome inflation for at least six months.
The fixed interest rate was 0% from May 2020, but peaked at 3.6% for 6 months from May 2000. You can see the history of both interest rates. Here..
There are only two ways to buy these assets.From online TreasuryDirectIndividuals or individuals, is limited to $ 10,000 per calendar year Use federal tax refunds I buy an additional $ 5,000 in bonds.Each has redemption details Here..
You can also buy more I bonds through a company, trust, or real estate. For example, a couple with separate businesses may buy $ 10,000 per company and $ 10,000 as an individual, for a total of $ 40,000.
One of the drawbacks of I-bonds is that they cannot be redeemed for at least a year, said George Galliadi, a certified financial planner and founder of Coromandel Wealth Management in Lexington, Massachusetts. And if you monetize them within 5 years, you will lose interest for the last 3 months.
“I think it’s decent, but like everything else, there’s nothing free,” he said.
Another possible drawback is low future earnings. According to Galliardi, the variable portion of the I bond rate may be revised downwards every six months, and elsewhere may prefer high-value assets. However, if you decide to cash out early, you only have a one-year commitment with a three-month interest penalty.
Christopher Fris, founder and CFP of Resident Asset Management in Memphis, Tennessee, said I might still be worth considering assets other than your emergency funds.
“I think I-Bond is a great place to put money that people don’t need right now,” he said, for example, as an alternative to a one-year certificate of deposit.
According to DepositAccounts, as of May 2, the average yield on savings accounts is less than 1% and most yearly CDs are less than 1.5%.
“But private bonds are not a substitute for long-term funding,” Fris added.