In August 2022, the year-over-year inflation rate came in at 8.3% – a small move away from the reported 9.1% rate in June, the highest it’s been in more than four decades. Given the current inflationary market cycle, you may be wondering if there are any places left for middle-income investors (or maybe a secure place to grow extra cash for gifting) as we hide from the bear. For the conservative investor, there exists a less-often spoken about investment option: I-Bonds.
An I-Bond is a U.S. Treasury Security fixed to inflation. Every six months (at the beginning of May and at the beginning of November), the bond gears its interest rate to a blend of the current inflation rate and a fixed rate determined by the Fed (it can never fall to zero). In May, that rate was set at 9.62% – more than three times as much as the average APY your savings account might offer. The current I-Bond rate is the highest it’s been since 1998 when the bond was first introduced.
I-Bonds are guaranteed for their principal value plus accrued interest by the full faith and credit of the U.S. Government and can be held with interest for a period of up to 30 years. You need to hold the bond for at least five years in order to receive the full amount of interest earned. If you cash out your I-Bonds prior to one year, you will earn no interest. If you cash in between one year and five years, you forfeit three months of interest. Individuals can purchase up to $10,000 of electronic I-Bonds (and $5,000 of paper I-Bonds per tax return) per year. Additional investments can be made using a trust’s TIN or business entity’s EIN. Especially important to consider is I-Bonds can be purchased as gifts for any TreasuryDirect account holder, including children. Once purchased, the rate of the bond is applied for the 6-month period after the purchase is made.
I-Bonds may be purchased electronically through Treasury Direct, or can be purchased upon filing your tax return by including IRS Form 8888 to utilize any refund for purchase (in this instance you will receive a paper bond).
The last day to purchase I-Bonds at the 9.62% rate is October 28th, however you may still lock in a historically high interest rate if purchased thereafter given the most recently reported inflation rate. To purchase I-Bonds, make an account on Treasury Direct, complete the online application, and pay using either a checking or savings account linked to your bank. For more details on opening a Treasury Direct online account, check out this handy PDF guide.
For information on buying securities or managing your Treasury Direct account, explore this Guided Tour.
For all other inquiries and support, current clients may speak with TWC’s very own Heidi Phan-Peterson by calling the office at 303.444.1919.