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In many cases, low risk means low returns. However, this is not the case with inflation-protected and government-sponsored I-bonds, which could soon pay an estimated 9.62%.
My bond currently offers an annual return of 7.12% until April, Rate may reach 9.62% in May Based on the latest consumer price index data. Annual inflation increased by 8.5% In March, according to the US Department of Labor.
“9.62% is a stunning number,” said Christopher Fris, a certified financial planner and founder of Resident Asset Management in Memphis, Tennessee. “Especially considering how other fixed income assets worked this year.”
Of course, the 9.62% return is an estimate until the US Treasury announces a new interest rate on May 2. Still, if you’re looking for a way to overcome inflation, private bonds may be worth a look. Here’s what you need to know before you buy:
Government-backed private bonds do not lose value or pay interest based on two parts: fixed and floating rates, which fluctuate semi-annually based on the consumer price index.
According to Ken Tumin, purchases of I-bonds by the end of April will be fixed at 7.12% for the next 6 months, estimated at 9.62% for the next 6 months, and averaged 8.37% for the next 6 months. Founder and editor of DepositAccounts.com. Track these assets..
However, there are only two ways to buy these assets. Treasury DirectIndividuals 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.
George Galliardi, founder and CFP of Coromandel Wealth Management in Lexington, Massachusetts, said one of the drawbacks of I bonds is that they cannot be redeemed for at least a year. 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.
Still, I may be worth considering assets other than your emergency funds, said Frith of Resilience Asset Management.
“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.
“But private bonds are not a substitute for long-term funding,” Fris said.