Back in May, we sent a newsletter out about I bonds. Their interest rate is tied to inflation, which has increased substantially post pandemic. Many of you have worked with us to purchase these through TreasuryDirect.gov and those who did locked in the 9.62% interest rate for 6 months. Purchases made after October 28, 2022 will have the revised, but still high interest rate of 6.89%. This rate will apply to any I bonds purchased from October 29th 2022, through the end of April 2023. We are still recommending that anyone with excess cash consider purchasing I bonds at the rate of 6.89% as this is higher than other fixed income, nearly risk-free securities. A few caveats for I bonds you should be aware of are listed below:
Each person can only invest $10,000 per year plus up to $5,000 of their tax refund. For those of you who have already purchased $10,000 in 2022, we will be reaching out in January as a reminder that more can be purchased in 2023. I bonds can also be purchased in the name of a trust or LLC or as a gift for another person.
You can't cash in the bonds for at least 12 months, and if you cash them in before five years have passed you will pay a penalty of three months of interest.
The rates may still be great now, but the guaranteed interest rate is currently 0.40%, meaning that if inflation rates fall, which many experts expect they will, you may soon end up with bonds paying a lower rate than some FDIC-insured high-yield savings accounts. This is not a huge issue; the 6.89% rate will be locked in for 6 months, so even if it falls to 0.40% at that time, you still have a pretty great return by the end of the 12-month holding time. The previous guaranteed interest rate was 0%.
They must be purchased at TreasuryDirect.Gov and cannot be moved after purchase. Lost savings bonds are common, so you will want to very clearly note somewhere that you own the bonds and keep records of the serial number, issue date, and face value. We have been working with clients to create these accounts and purchase the bonds as well as adding these bonds to your Estate Titling and Beneficiary Report to help track them for you.
Please let us know if you have any questions or would like to move forward with purchasing I bonds either for the first time in 2022, or additional bonds in 2023.
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