by Dr. Robert Votruba
Last week inflation hit a 40-year high and there has been much talk recently about its impact on markets and the economy as we discussed recently here. One way investors can benefit from rising consumer prices is the Series I Savings bond (I-bonds) issued by the US. Treasury.
I bonds set their interest rates every six months (in May and November) based on inflation and a fixed rate. Since they are tied to inflation rates, until recently I bonds have flown under the radar because their returns were unattractive. Of course, things have changed. Last November’s rate, which is good until May, was 7.12% (annualized) and next month the rate could reset to 9.6%+ based on prior calculation methods. There is arguably no stronger borrower than the U.S. Treasury, so a 9.6% guarantee merits attention.
I Bonds must be purchased directly from the U.S. Treasury and can not be held in brokerage accounts. Some other considerations are:
· The maximum amount that can be purchased per year, per person, is $10,000. So, a married couple can purchase $20,000 of I bonds in a year.
· They must be held for a least one year, and if redeemed before 5 years will result in forfeiture of 3 months interest.
· The rate resets every six months and can go down. If inflation goes down, so too will the interest rate. For instance, in May 2020 the I bond rate was 1.06%.
· Interest is subject to federal tax (but exempt from state tax).
Though we are unable to purchase these bonds for you, we wanted to share this information anyway. If you would like to use funds from your accounts with our firm to purchase I bonds, please give us a call and we can arrange to wire monies to your bank account, which you can link to your TreasuryDirect account.
To find out more about I Bonds and to open an account with TreasuryDirect click here: (https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm)
Written by Dr. Robert Votruba
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. National Financial Network is not an affiliate or subsidiary of PAS or Guardian. CA Insurance License Number - 0D23495. Data and rates used were indicative of
market conditions as of the date shown. Opinions, estimates, forecasts and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. Past performance is not a guarantee of future results. S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results.
2022-136973 Exp 4/2024