I Bonds: How to Buy High Yield Bonds
Treasuries I aren’t just a good deal in October. They are a great deal with a 9.62% interest rate. And now is the time to consider investing in Treasury’s newest attractive I-bond.
The yield of 6.89% on the new bond is fifth highest never on a Series I bond since its 1998 launch.
And the generous scale of the proportions somewhat surprised experts.
I Bonds: Website Down
The old I bond’s amazing 9.62% annualized yield was the highest ever for bond I. But it’s no longer there.
The 9.62% rate was so attractive that the TreasuryDirect.gov website collapsed under the weight of investors trying to buy debt. In October alone, sales set a record. One-day sales of $979 million by the October 28 deadline is roughly equal to $1 billion in cumulative revenue from 2018 to 2020.
Total revenue in October was nearly 7 billion USD.
You can buy a new Bond I at 6.89% between now and April.
How these bonds work
The reason I bond with a relatively high yield is because they are fixed to the rate of inflation. The Treasury sets a new interest rate every six months using inflation data.
As many Americans are painfully aware, inflation has spiked to a peak in the second half of 2022. “Although inflation started to decline in late summer, it remained high,” said Ken Tumin, founder. and the editor of the magazine said. DepositAccounts.coma website that compares bank accounts.
Technically, these bonds consist of two components, each paying its own interest. One is tied to inflation. That rate resets every six months. The new rate tied to inflation is the third-highest ever, Tumin said.
The other interest rate, now 0.40%, is fixed over the bond’s 30-year term. “Treasury raised the fixed rate to 0.4%,” Tumin said. “It was a bit more than I expected.”
The aggregate rate is 6.89%.
How to buy me bonds
Each calendar year, you can purchase an e-bond worth up to $10,000. Alternatively, you can buy up to $5,000 worth of paper I bonds. But the only way you can buy the paper version is by using a tax refund. You can do it when you file your tax return, using IRS Form 8888.
You can then convert the paper bond into an electronic bond.
However, as IBD explained in an earlier report, a couple can use legal loopholes to plow up to a total of $75,000 into these bonds.
Here’s how: each spouse purchases $10,000 worth of Bond I directly. Each spouse must have their own TreasuryDirect Account.
If you are a two-career couple, each running a business, your companies can buy each of you another $10,000. If your financial plan calls for the creation of two living trusts, each of those entities can purchase one of these Treasuries for each of you.
The main purpose of a living trust is usually to transfer assets to loved ones after your death.
Meanwhile, let’s say you have three children. You can buy up to $5,000 worth of bonds for each of them. Each child must have their own Live Treasury account. That’s another $15,000. As a family, you will invest $75,000 in Bond I for one year.
But remember the calendar year limit. If you’ve bought up to any limit of a bond with a yield of 9.62%, you must wait until January to buy a new bond with a yield of 6.89% in that same account.
Watch out for the risk
You can cash out with I bonds after 12 months. But if you cash out before it’s five years old, you’ll lose interest for the last three months.
The new 6.89% rate will only last six months before the Treasury resets it.
However, I think bond rivals are losing their luster as inflationary pressures seem to ease.
invest in competitors
Competitors include 5- and 10-year Treasury bonds. “We saw yields on 5- and 10-year Treasuries fall following the October consumer price index (CPI) news,” Tumin said.
“Even if inflation falls and the May 2023 I-bond inflation rate is lower, the annual returns will likely be very competitive with today’s safe-haven alternatives like Treasury bills,” Tumin said. one-year silver and one-year certificates of deposit (CD). the highest one-year CD rate is currently just 4.84% annualized percentage yield (APY).”
If inflation eases, locking in the interest rate on Bond I today would be even more valuable. “I Bond yields will only be attractive when inflation is high,” Tumin said.
Follow Paul Katzeff on Twitter in @IBD_PKatzeff for personal finance tips and the best mutual funds strategies.