Savings I Bonds May 2022 Inflation Update: 9.62% Interest Rate!

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

May 2022 rate confirmed at 9.62%. Official press release. The variable inflation-indexed rate for I bonds bought from May 1, 2022 through October 31, 2022 will indeed be 9.62% as predicted. Every single I bond will earn this rate eventually for 6 months, depending on the initial purchase month. The fixed rate (real yield) is also 0% as predicted. Still a good deal.

See you again in mid-October for the next early prediction for November 2022.

Original post 4/12/22:

Inflation (and thus I Bonds) 🚀🚀🚀! Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. With a holding period from 12 months to 30 years, you could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the May 2022 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a April 2022 savings bond purchase will yield over the next 12 months, instead of just 6 months. You can then compare this against a May 2022 purchase.

New inflation rate prediction. September 2021 CPI-U was 274.310. March 2022 CPI-U was 287.504, for a semi-annual increase of 4.81%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 9.62%. You add the fixed and variable rates to get the total interest rate. The fixed rate hasn’t been above 0.50% in over a decade, but if you have an older savings bond, your fixed rate may be up to 3.60%.

Tips on purchase and redemption. You can’t redeem until after 12 months of ownership, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A simple “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month – same as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in April 2022. If you buy before the end of April, the fixed rate portion of I-Bonds will be 0%. You will be guaranteed a total interest rate of 0.00 + 7.12 = 7.12% for the next 6 months. For the 6 months after that, the total rate will be 0.00 + 9.62 = 9.62%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on April 30th, 2022 and sell on April 1st, 2023, you’ll earn a ~6.51% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you theoretically buy on April 30th, 2022 and sell on July 1, 2023, you’ll earn a ~7.17% annualized return for an 14-month holding period. Comparing with the best interest rates as of April 2022, you can see that this is much higher than a current top savings account rate or 12-month CD.

Buying in May 2022. If you buy in May 2022, you will get 9.62% plus a newly-set fixed rate for the first 6 months. The new fixed rate is officially unknown, but is loosely linked to the real yield of short-term TIPS, and is thus very, very, VERY likely to be 0%. Every six months after your purchase, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (based on purchase month, look it up here) + variable rate (total bond rate has a minimum floor of 0%). So if your fixed rate was 1%, you’ll be earning a 1.00 + 9.62 = 10.62% rate for six months.

Buy now or wait? Given that the current I bond rate is already much higher than the equivalent alternatives, I would personally buy in April to lock in the high rate for the longest possible time. Who knows what will happen on the next reset? I already purchased up to the limits first thing in January 2022. You are also getting a much better “deal” than with TIPS, as the fixed rate is currently negative with short-term TIPS.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and consider it part of the inflation-linked bond allocation inside my long-term investment portfolio. Right now, the inflation protection “insurance” is paying off with high yields and no principal risk.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. You can only buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number. TreasuryDirect also allows trust accounts to purchase savings bonds.

Note: Opening a TreasuryDirect account can sometimes be a hassle as they may ask for a medallion signature guarantee which requires a visit to a physical bank or credit union and snail mail. Don’t expect to be able to open an account in 5 minutes on your phone.

Bottom line. Savings I bonds are a unique, low-risk investment that are linked to inflation and only available to individual investors. Right now, they promise to pay out a higher fixed rate above inflation than TIPS. You can only purchase them online at TreasuryDirect.gov, with the exception of paper bonds via tax refund. For more background, see the rest of my posts on savings bonds.

[Image: 1950 Savings Bond poster from US Treasury – source]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings I Bonds November 2021 Interest Rate: 7.12% Inflation Rate

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

November 2021 rate confirmed at 7.12%. The variable inflation-indexed rate for I bonds bought from November 1, 2021 through April 30th, 2022 will indeed be 7.12% as predicted. Every single I bond will earn this rate eventually for 6 months, depending on the initial purchase month.

The fixed rate (real yield) is also 0% as predicted, but realize that the real yield on a 5-year TIPS right now is about negative 1.7%. There is significant demand for inflation protection right now. See you again in mid-April for the next early prediction for May 2022. Don’t forget that the purchase limits are based on calendar year, if you still wish to max out for 2021.

Original post 10/13/2021:

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. With a holding period from 12 months to 30 years, you could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the November 2021 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a October 2021 savings bond purchase will yield over the next 12 months, instead of just 6 months. You can then compare this against a November 2021 purchase.

New inflation rate prediction. March 2021 CPI-U was 264.877. September 2021 CPI-U was 274.310, for a semi-annual increase of 3.56%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 7.12%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be up to 3.60%.

Tips on purchase and redemption. You can’t redeem until after 12 months of ownership, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A simple “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month – same as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in October 2021. If you buy before the end of October, the fixed rate portion of I-Bonds will be 0%. You will be guaranteed a total interest rate of 0.00 + 3.54 = 3.54% for the next 6 months. For the 6 months after that, the total rate will be 0.00 + 7.12 = 7.12%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on October 31st, 2021 and sell on October 1st, 2022, you’ll earn a ~3.87% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you theoretically buy on October 31st, 2021 and sell on January 1, 2023, you’ll earn a ~4.57% annualized return for an 14-month holding period. Comparing with the best interest rates as of October 2021, you can see that this is much higher than a current top savings account rate or 12-month CD.

Buying in November 2021. If you buy in November 2021, you will get 7.12% plus a newly-set fixed rate for the first 6 months. The new fixed rate is officially unknown, but is loosely linked to the real yield of short-term TIPS, and is thus very, very, very likely to be 0%. Every six months after your purchase, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (total bond rate has a minimum floor of 0%). So if your fixed rate was 1%, you’ll be earning a 1.00 + 7.12 = 8.12% rate for six months.

Buy now or wait? Given that the current I bond rate is already much higher than the equivalent alternatives, I would personally buy in October to lock in the high rate for the longest possible time. Who knows what will happen on the next reset? Either way, it seems worthwhile to use up the purchase limit for 2021 either in October or November. You are also getting a much better “deal” than with TIPS, as the fixed rate is currently negative with short-term TIPS.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. You can only buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

Note: Opening a TreasuryDirect account can sometimes be a hassle as they may ask for a medallion signature guarantee which requires a visit to a physical bank or credit union and snail mail. Don’t expect to be able to open an account in 5 minutes on your phone.

Bottom line. Savings I bonds are a unique, low-risk investment that are linked to inflation and only available to individual investors. Right now, they promise to pay out a higher fixed rate above inflation than TIPS. You can only purchase them online at TreasuryDirect.gov, with the exception of paper bonds via tax refund. For more background, see the rest of my posts on savings bonds.

[Image: 1950 Savings Bond poster from US Treasury – source]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Reader Question: Should I Buy Savings Bonds in September/October 2021 or November 2021?

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

sb_poster

Here’s a timely reader question about Series I Bonds. It’s a good question because I predict that Series I Bonds will be soon getting even more media attention soon due to an even higher inflation-linked rate.

Would it be best to wait till November 1st to purchase I bonds? You mentioned the fixed rate will probably confine at 0. but what about the semiannual inflation rate? Do u think it is likely to be more than 3.54%? I’m new to this please educate me.

Series I Bond rates react every 6 months to delayed inflation reports from the Bureau of Labor Statistics. August CPI-U was already reported in mid-September, and September CPI-U will be reported in mid-October. 5 out of 6 months of data are already in the books, leaving only one month of data left. The 12-month trailing inflation rate as of that August CPI-U update was over 5%. Therefore, unless that data contains a significant amount of deflation, we already know that the next inflation rate on Series I Bonds is going to be higher than the 3.54% from May to October 2021. I roughly estimate the range that the next inflation rate will be between as 5% to 7%. That should be enough accuracy to make a purchase timing decision, earlier than my usual practice of waiting until mid-October.

  • If you buy in September or October 2021, you will receive a total rate of 3.54% for the first six months, then the “new” (estimated 5%-7%) rate for the next 6 months, and then new rates adjusted every six months for inflation onward.
  • If you buy in November 2021, you will receive the “new” (estimated 5%-7%) rate for the first 6 months, and then new rates adjusted every six months for inflation onward.

The takeaway is that either way, you will earn the “new” rate (estimated 5%-7%) eventually. If you buy in September/October, you’ll just have to wait a bit due to the staggered structure. Given that the current rate of 3.54% is still a higher interest rate than nearly any other savings account or CD is paying, I would personally just invest now if I had the cash ready and waiting. Also remember that Series I Bonds do not allow early withdrawals within the first 12 months after purchase date. As long as you complete your purchase by the end of September, it will count as purchased in September 2021 and you will be able to withdraw as of September 1st, 2022 (though subject to a penalty if held less than 5 years). It may take a little bit to set up your TreasuryDirect account, and it may take a couple business days for the withdrawal and purchase to process, so I wouldn’t wait until the last day.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. You can only buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

As noted in my previous savings bond posts, these Series I bonds are a unique investment opportunity in that they are only available to individuals and are subject to purchase limits. Even if the real yield (fixed rate) is set at zero, that is still significantly higher than that of TIPS that trade on the open market (well negative across the board!). If institutional investors like pension funds or endowments could buy I bonds like you and me, they would buying billions of them.

I plan to purchase up to my annual purchase limit for 2021 as part of my asset allocation to inflation-linked bonds, although you can start with as little as $25. I guarantee that there will be many more articles about Series I bonds in mainstream personal finance sites in November after the new rate is officially announced.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings I Bonds May 2021 Interest Rate: 3.54% Inflation Rate

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

May 2021 predictions confirmed. The fixed rate will indeed be 0% for I bonds issued from May 1, 2021 through October 31st, 2021. The variable inflation-indexed rate for this 6-month period will be 3.54% (also as predicted). See you again in mid-October for the next early prediction for November 2021. Don’t forget that the purchase limits are based on calendar year, if you wish to max for 2021. (I’m going to max out by the end of May.)

Original post:

sb_poster

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. With a holding period from 12 months to 30 years, you could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the May 2021 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a April 2021 savings bond purchase will yield over the next 12 months, instead of just 6 months. You can then compare this against a May 2021 purchase.

New inflation rate prediction. September 2020 CPI-U was 260.280. March 2021 CPI-U was 264.877, for a semi-annual increase of 1.77%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 3.54%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be up to 3.60%.

Tips on purchase and redemption. You can’t redeem until after 12 months of ownership, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A simple “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month – same as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in April 2021. If you buy before the end of April, the fixed rate portion of I-Bonds will be 0%. You will be guaranteed a total interest rate of 0.00 + 1.68 = 1.68% for the next 6 months. For the 6 months after that, the total rate will be 0.00 + 3.54 = 3.54%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on April 30th, 2021 and sell on April 1, 2022, you’ll earn a ~1.88% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you theoretically buy on April 30th, 2021 and sell on July 1, 2022, you’ll earn a ~2.24% annualized return for an 15-month holding period. Comparing with the best interest rates as of April 2021, you can see that this is higher than a current top savings account rate or 12-month CD.

Buying in May 2021. If you buy in May 2021, you will get 3.54% plus a newly-set fixed rate for the first 6 months. The new fixed rate is officially unknown, but is loosely linked to the real yield of short-term TIPS, and is thus very, very, very likely to be 0%. Every six months after your purchase, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (total bond rate has a minimum floor of 0%).

Buy now or wait? The question is, would you rather get 1.68% for six months and then 3.54% for six months guaranteed, or get 3.54% for six months plus an unknown value? If you think the next inflation adjust will be greater than 1.68%, then you may choose to buy in May. Either way, it seems worthwhile to use up the purchase limit for 2021 as the total rates will at least be higher than other cash equivalents. You are also getting a much better “deal” than with TIPS, the fixed rate is currently negative with short-term TIPS.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and now consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. You can only buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

Bottom line. Savings I bonds are a unique, low-risk investment that are linked to inflation and only available to individual investors. Right now, they promise to pay out a higher fixed rate above inflation than TIPS. You can only purchase them online at TreasuryDirect.gov, with the exception of paper bonds via tax refund. For more background, see the rest of my posts on savings bonds.

[Image: 1946 Savings Bond poster from US Treasury – source]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings I Bonds November 2020 Interest Rate: 1.68% Inflation Rate, 0% Fixed

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Update November 2020. The fixed rate will be 0% for I bonds issued from November 1, 2020 through April 30th, 2021. The variable inflation-indexed rate for this 6-month period will be 1.68% (as was predicted). If you buy a new bond in between November 2020 and April 2021, you’ll get 1.68% for the first 6 months. Don’t forget that the purchase limits are based on calendar year, if you wish to max out for 2020. See you again in mid-April for the next early prediction for May 2021.

Original post:

sb_posterSavings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. With a holding period from 12 months to 30 years, you could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the November 2020 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a October 2020 savings bond purchase will yield over the next 12 months, instead of just 6 months. You can then compare this against a November 2020 purchase.

New inflation rate prediction. March 2020 CPI-U was 258.115. September 2020 CPI-U was 260.280, for a semi-annual increase of 0.84%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 1.68%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Tips on purchase and redemption. You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A simple “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in October 2020. If you buy before the end of October, the fixed rate portion of I-Bonds will be 0%. You will be guaranteed a total interest rate of 0.00 + 1.06 = 1.06% for the next 6 months. For the 6 months after that, the total rate will be 0.00 + 1.68 = 1.68%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on October 31st, 2020 and sell on October 1, 2021, you’ll earn a ~1.04% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you theoretically buy on October 31st, 2020 and sell on February 1, 2022, you’ll earn a ~1.10% annualized return for an 15-month holding period. Comparing with the best interest rates as of October 2020, you can see that this is slightly higher than a current top savings account rate or 12-month CD.

Buying in November 2020. If you buy in November 2020, you will get 1.68% plus a newly-set fixed rate for the first 6 months. The new fixed rate is unknown, but is loosely linked to the real yield of short-term TIPS. In the past 6 months, the 5-year TIPS yield has been consistently negative! My confident guess is that it will be zero (0%). Every six months, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (total bond rate has a minimum floor of 0%).

Buy now or wait? The fixed rate is most likely going to be zero for October and November purchases, and so I would personally wait until November and get the 1.68% inflation and unknown inflation rate after that, betting that it will be higher than 1.06%. Either way, it seems worthwhile to use up the purchase limit for 2020 as the rates will at least be slightly higher than other cash equivalents.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and now consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

[Image: 1946 Savings Bond poster from US Treasury – source]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings I Bonds May 2020 Interest Rate: 0.00% Fixed, 1.06% Inflation Rate

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

sb_poster

Update May 2020. The fixed rate will be 0.00% for I bonds issued from May 1, 2020 through October 31st, 2020. The variable inflation-indexed rate for this 6-month period will be 1.06% (as was predicted). The total rate on any specific bond is the sum of the fixed and variable rates, changing every 6 months. If you buy a new bond in between May 2020 and October 2020, you’ll get 1.06% for the first 6 months. See you again in mid-October for the next early prediction for November 2020.)

Original post 4/13/20:

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. You could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the May 2020 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a April 2020 savings bond purchase will yield over the next 12 months, instead of just 6 months. You can then compare this against a May 2020 purchase.

New inflation rate prediction. September 2019 CPI-U was 256.759. March 2020 CPI-U was 258.115, for a semi-annual increase of 0.53%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 1.06%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Tips on purchase and redemption. You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in April 2020. If you buy before the end of April, the fixed rate portion of I-Bonds will be 0.20%. You will be guaranteed a total interest rate of 0.20 + 2.02 = 2.22% for the next 6 months. For the 6 months after that, the total rate will be 0.20 + 1.06 = 1.26%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on April 30th, 2020 and sell on April 1, 2021, you’ll earn a ~1.55% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. Comparing with the best interest rates as of April 2020, you can see that this is lower than a current saving rate or 12-month CD.

Buying in May 2020. If you buy in May 2020, you will get 1.06% plus a newly-set fixed rate for the first 6 months. The new fixed rate is unknown, but is loosely linked to the real yield of short-term TIPS. In the past 6 months, the 5-year TIPS yield has dropped to a negative value! My best guess is that it will be 0.00%. Every six months, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (total bond rate has a minimum floor of 0%).

Buy now or wait? In the short-term, these I bond rates will definitely not beat a top 12-month CD rate if bought in April, and most likely won’t if bought in May either unless inflation skyrockets. Thus, if you just want to beat the current bank rates, I Bonds are not a good short-term buy right now.

If you intend to be a long-term holder, then another factor to consider is that the April fixed rate is 0.2% and that it will likely drop at least a little in May in my opinion. You may want to lock in that higher fixed rate now, which is higher than the real yield on TIPS right now.

Honestly, I am not too excited to buy either in April or May, but if I liked the long-term advantages of savings bonds (see below), I would consider buying now in April rather than May due to my guess of a higher fixed rate. You could also wait, as things might change again during the next update in mid-October.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and now consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

[Image: 1946 Savings Bond poster from US Treasury – source]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings I Bonds November 2019 Interest Rate: 2.02% Inflation + 0.20% Fixed Rate

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

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Updated November 2019. The fixed rate will be 0.20% for I bonds issued from November 1, 2019 through April 30th, 2020. This is a drop from the previous fixed rate of 0.50%. The variable inflation-indexed rate for this 6-month period will be 2.02% (as was predicted). The total rate on any specific bond is the sum of the fixed and variable rates, changing every 6 months. If you buy a new bond in between November 2019 and April 2020, you’ll get 2.22% for the first 6 months. This isn’t that bad given the recent rate cuts. See you again in mid-April for the next early prediction for May 2020.

Original post 10/14/19:

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. You could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the November 2019 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to predict what an October 2019 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New inflation rate prediction. March 2019 CPI-U was 254.202. September 2019 CPI-U was 256.759, for a semi-annual increase of 1.01%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 2.02%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Tips on purchase and redemption. You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in October 2019. If you buy before the end of October, the fixed rate portion of I-Bonds will be 0.50%. You will be guaranteed a total interest rate of 1.90% for the next 6 months (0.50 + 1.40). For the 6 months after that, the total rate will be 0.50 + 2.02 = 2.52%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on October 31st, 2019 and sell on October 1, 2020, you’ll earn a ~1.72% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you held for three months longer, you’d be looking at a ~1.89% annualized return for a 14-month holding period (assuming my math is correct). Compare with the best interest rates as of October 2019.

Buying in November 2019. If you buy in November 2019, you will get 2.02% plus a newly-set fixed rate for the first 6 months. The new fixed rate is unknown, but is loosely linked to the real yield of short-term TIPS. In the past 6 months, the 5-year TIPS yield has dropped to about 0.20% and has been close to zero. My best guess is that it will be 0.10%. Every six months, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (minimum floor of 0%).

Buy now or wait? In the short-term, these I bond rates will probably not beat a top CD. If you intend to be a long-term holder, a factor to consider is that the October fixed rate is 0.5% and that it will likely drop at least a little in November in my opinion. You may want to lock in that higher fixed rate now.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and now consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

[Image: 1946 Savings Bond poster from US Treasury – source]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


How to Recover Lost US Savings Bonds

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Here’s a drawback to US savings bonds that you might not have considered: Savings Bonds are easy to forget about. Paper savings bonds are often left in safe deposit boxes and forgotten. Electronic savings bonds do not generate a paper trail either – no monthly statements, no annual tax forms, nothing. There is not even a reminder when they mature and stop earning interest. If something unexpected happens to the owner, it’s quite possible nobody else will realize the savings bonds are still there, perhaps still compounding away.

How many have been forgotten? The US Treasury is currently sitting on over $25 billion in matured, unclaimed U.S. savings bonds. This is according to the WSJ article States Battle Treasury Over Billions in Unclaimed Savings Bonds (paywall?).

Three Missouri sisters from a Russian immigrant family—Bessie, Anna and Mary Segal—socked away money into U.S. savings bonds for decades starting in the 1940s, investing $25 or $50 at a time.

They never married and by 1998, all three had died, with little money to their names. What the sisters didn’t realize was that those bonds, stored and forgotten in a Kansas bank, had turned into more than $670,000.

Most of that article is about how individual states are fighting with the federal government over who gets the manage the forgotten savings bonds. Both sides talk about fighting for us “little guys”, but the another incentive is that the winner also gets to keep whatever is left over as unclaimed property… again, billions of dollars.

Here’s how to recover lost savings bonds for you and or your relatives, including those gifted to you in the past. Do it as soon as possible, as there may soon be a countdown after which the state will eventually take the money for themselves as unclaimed property.

  • Click here and download Form FS Form 1048 (PDF direct link), “Claim for Lost, Stolen, or Destroyed United States Savings Bonds”. This used to be called Public Debt Form 1048.
  • You will need to fill it out to the best of your ability to help them in a manual search. Ideally you would have the serial numbers, but include all of the information that you can gather. Your name and Social Security Number, the giver’s name and SSN (parent? aunt/uncle? grandparent?), addresses, former addresses, middle initials, etc. If you don’t know something, just leave it blank.
  • Indicate whether you would like a replacement savings bond or direct deposit of the value into your bank account.
  • Obtain a medallion signature guarantee from a financial institution in order to verify your identity.
  • Mail it to the specific PO Box address listed at the bottom of the form. There is no fee.

Kathryn Davenport Bernard was surprised to learn in 2017 from a Kentucky law firm that she could collect on bonds found in the name of her uncle, Roger Lovelace, who died during World War II when she was a girl.

After several months of paperwork, Ms. Bernard and her twin sister each got a $1,300 check. “I just squirreled it away,” she said of the unexpected funds.

If you have existing savings bonds, be sure to create a backup list of all your bonds including purchase date, amount, owner info, and serial numbers. Here is the TreasuryDirect page on what happens upon the Death of a Savings Bond Owner, which applies to paper bonds only.

If you have electronic savings bonds in a TreasuryDirect account, be sure to keep a record of those as well. The TreasuryDirect website directs you to contact the Bureau of Fiscal Service directly if you know of someone with an online account that has died. They will put a hold on the account and give specific instructions for the situation.

Pre-emptive selling? While putting together my other estate documents, I realized that this complexity may not only be a hassle to my loved ones, but if they forget they may lose access to the money completely. Therefore, if I find myself in a year with relatively low income (and thus a lower tax bracket), I will probably sell off all my paper savings bonds and possibly my electronic ones as well. Savings bonds have been a useful tool in building up my investment portfolio, but they are not the best fit if you don’t keep detailed records and/or your family is not adept in navigating bureaucracy.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings I Bonds May 2019 Interest Rate: 1.40% Inflation + 0.50% Fixed Rate

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

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Update 5/1/19. The fixed rate will be 0.50% for I bonds issued from May 1, 2019 through October 31st, 2019. This is the same as it was for the last 6 months. The variable inflation-indexed rate for this 6-month period will be 1.40% (as was predicted). The total rate on any specific bond is the sum of the fixed and variable rates, changing every 6 months. If you buy a new bond in between May 2019 and October 2019, you’ll get 1.90% for the first 6 months. See you again in mid-October for the next early prediction for November 2019.

Original post 4/11/19:

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. You could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the May 2019 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a April 2019 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New inflation rate prediction. September 2018 CPI-U was 252.439. March 2019 CPI-U was 254.202, for a semi-annual increase of 0.70%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 1.40%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Tips on purchase and redemption. You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in April 2019. If you buy before the end of April, the fixed rate portion of I-Bonds will be 0.50%. You will be guaranteed a total interest rate of 2.82% for the next 6 months (0.50 + 2.32). For the 6 months after that, the total rate will be 0.50 + 1.40 = 1.90%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on April 30th, 2019 and sell on April 1, 2020, you’ll earn a ~2.06% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. Comparing with the best interest rates as of April 2019, you can see that this is lower than a current saving rate or 12-month CD.

Buying in May 2019. If you buy in May 2019, you will get 1.40% plus a newly-set fixed rate for the first 6 months. The new fixed rate is unknown, but is loosely linked to the real yield of short-term TIPS. In the past 6 months, the 5-year TIPS yield has dropped from 1% to about 0.5%. My best guess is that it will be 0.20%. Every six months, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (minimum floor of 0%).

Buy now or wait? In the short-term, these I bond rates will definitely not beat a top 12-month CD rate if bought in April, and most likely won’t if bought in May either unless inflation skyrockets. Thus, if you just want to beat the current bank rates, I Bonds are not a good short-term buy right now.

If you intend to be a long-term holder, then another factor to consider is that the April fixed rate is 0.5% and that it will likely drop at least a little in May in my opinion. You may want to lock in that higher fixed rate now.

Honestly, I am not too excited to buy either in April or May, but if I really liked the long-term advantages of savings bonds (see below), I would consider buying now in April rather than May due to my guess of a higher fixed rate. You could also wait, as things might change again during the next update in mid-October. For my own accounts, as I am now semi-retired and thus no longer a big saver looking for any tax-deferred space possible, I will probably just buy TIPS in other accounts instead since the real yield is similar.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and now consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

[Image: 1946 Savings Bond poster from US Treasury – source]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Savings I Bonds November 2018 Interest Rate: 2.32% Inflation Rate, 0.50% Fixed Rate

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

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Update 11/1/18. The fixed rate will be 0.50% for I bonds issued from November 1, 2018 through April 30, 2019. The variable inflation-indexed rate for this 6-month period will be 2.32% (as was predicted). The total rate on any specific bond is the sum of the fixed and variable rates, changing every 6 months. If you buy a new bond in November 2018, you’ll get 2.82% for the first 6 months. See you again in mid-April 2019 for the next early prediction.

Original post 10/14/18:

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. You could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the November 2018 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a October 2018 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New inflation rate prediction. March 2018 CPI-U was 249.554. September 2018 CPI-U was 252.439, for a semi-annual increase of 1.16%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 2.32%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Tips on purchase and redemption. You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in October 2018. If you buy before the end of October, the fixed rate portion of I-Bonds will be 0.30%. You will be guaranteed a total interest rate of 2.52% for the next 6 months (0.30 + 2.22). For the 6 months after that, the total rate will be 0.30 + 2.32 = 2.62%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on October 31st, 2018 and sell on October 1, 2019, you’ll earn a ~2.09% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you held for three months longer, you’d be looking at a ~2.20% annualized return for a 14-month holding period (assuming my math is correct). Compare with the best interest rates as of October 2018.

Buying in November 2018. If you buy in November 2018, you will get 2.32% plus a newly-set fixed rate for the first 6 months. The new fixed rate is unknown, but is loosely linked to the real yield of short-term TIPS, which has been rising a bit. The current real yield of 5-year TIPS now about ~1.00%. My best guess is that it will be 0.50% or 0.60%. Every six months, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (minimum floor of 0%).

Buy now or wait? In the short-term, these I bond rates will not beat a top 12-month CD rate if bought in October, and probably won’t if bought in November unless inflation skyrockets. Thus, I probably wouldn’t buy in October. I haven’t bought any savings bonds yet this year, and will wait until November to see what the new fixed rate will be. If it greatly lags the real yield on short-term TIPS, then I will probably just buy TIPS instead. However, if it is close, I will probably buy some savings bonds as a long-term investment given the unique benefits below.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and now consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

[Image: 1946 Savings Bond poster from US Treasury – source]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


TIPS ETF vs. TIPS Mutual Fund vs. Series I Savings Bond: 10-Year Performance Comparison (2008-2018)

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

While updating my portfolio spreadsheet, I noticed that it had been 10 years since I bought my first electronic savings bond. I recently listed Reasons To Own TIPS, Treasury Inflation-Protected Securities and Reasons To Own Series I Savings Bonds. This got me wondering – How did my 10-year savings bond performance compare to buying a TIPS ETF or a TIPS mutual fund?

A $10,000 Series I Savings Bond issued 3/1/2008 is now worth $13,964 as of 9/1/2018, a 3.4% annualized return. The interest automatically accrues and compounds, assuming no withdrawals were made. This is taken straight from my TreasuryDirect.gov account.

The largest TIPS ETF is the iShares TIPS Bond ETF (TIP). According to ETFReplay, below is the total return (green) of $100 invested from March 2008 to September 2018. Total return includes the effect of the immediate reinvestment of any dividends and distributions. TIP is a basket of individual TIPS, with an average effective maturity of about 8 years. $10,000 invested in TIP on 3/3/2008 would have turned into $13,230 on 9/4/18, a 2.8% annualized return.) (Actual dates used are the closest trading days.)

The largest TIPS mutual fund is the Vanguard Inflation-Protected Securities Fund (VIPSX). According to Morninstar, here is the total growth of $10,000 invested from March 2008 to September 2018. VIPSX is a basket of individual TIPS, with an average effective maturity of about 8 years. $10,000 invested in VIPSX on 3/1/2008 would have turned into $13,100 on 9/1/18, a 2.7% annualized return.

I could have also bought an individual TIPS bond back in March 2008 that matured in 2018, but I’m not sure about how to compute the total return with reinvested dividends (which kept varying with CPI) all the way up to today. If someone wants to run the numbers, I’d be happy to add them to this post.

Bottom line. Over roughly the last 10 years, the total returns from owning savings I Bonds vs. popular TIPS ETF vs. popular TIPS mutual fund varied between 2.7% vs. 3.4% annualized. The savings bond probably beat the ETFs and mutual funds slightly this time because it held a fixed rate of 1.2% while the other bond funds have an ongoing ladder of TIPS with lower average real rates. Over the next 10 years, with the current low fixed rates on savings bonds, the ETF and mutual fund might win slightly instead. This is why you would compare the current fixed rate on savings bonds vs. the current real yields on TIPS when considering a purchase between them. I would also factor in the tax deferral feature of savings bonds.

The bigger question is whether you want to own inflation-linked bonds at all. (See links at the top of post for help on that.)

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Reasons To Own Series I Savings Bonds

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sb_posterSeries I Savings Bonds (aka “I Bonds”) are a unique investment sold directly to individuals by the US Treasury that pay out a variable interest rate linked to inflation. This post collects general reasons to own these savings bonds without going into the internal details of how they work. Please also see my related post Reasons To Own TIPS, Treasury Inflation-Protected Securities.

Backed by the US government and will never decrease in nominal value. If you buy an I Bond for $1,000, you’ll never get less than $1,000 back. Sometimes it’s nice to know that something will only go up in numerical value.

Pays interest that is the sum of a fixed rate and an inflation-linked rate. The fixed rate is set at purchase. The inflation-linked rate is reset every 6 months based on a preset formula tracking the CPI-U (Consumer Price Index for All Urban Consumers). This is unique and would come in helpful in times of unexpectedly higher inflation. I write about the upcoming I bond rate changes every 6 months as well.

Sold directly by US Treasury with no fees. You must either buy them directly online at TreasuryDirect.gov or via paper bonds via tax return. There are no purchase fees or annual maintenance fees.

Interest from I-Bonds are exempt from state and/or local income taxes. Same as with US Treasury bonds and TIPS.

Federal income tax on interest is not due until redemption. This means that you can defer paying taxes on accrued interest for up to 30 years. You don’t owe taxes until you cash out. This also means that you can time your eventual withdrawal during a year where you have the lowest tax rate (i.e. when your income drops after retirement).

Possible tax-free interest when used for qualified educational expenses. If you meet all the requirements, you can even avoid federal income taxes completely when paying qualified higher education expenses at an eligible institution. These include income phase-out limits.More information at this TreasuryDirect page. You can even contribute your proceeds to a 529 plan or Coverdell Educational Savings Account. Here are some tips from Finaid.org.

Series EE and I US Savings Bonds issued after December 31, 1989 may be redeemed tax-free in order to contribute the proceeds to a section 529 plan or Coverdell Education Savings Account. (To take advantage of this, file IRS Form 8815 to claim an exclusion for the interest after rolling the proceeds of these US Savings Bonds into a section 529 college savings plan or Coverdell Education Savings account. Write “529 College Savings Plan” or “Coverdell Education Savings Account” in the answer to 1(b), where it asks for the name of the educational institution. The specific citation in the tax code for this guidance is IRC Section 135(c)((2)(C).)

Reasons for NOT owning I Bonds.

  • There are purchase limits for I Bonds of $10,000 per person per year in electronic format. You can also buy an additional $5,000 in paper bonds per year using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.
  • The fixed rate has been low in recent years. Here, the inflation-linking may help you get an interest rate slightly above inflation, but after taxes, your net return may still lag inflation. For example if the fixed rate was zero and inflation was 2%, you would probably get less than a 2% return after taxes.
  • As with interest earned from bank accounts and taxable bonds, interest is eventually taxed at ordinary income rates. Long-term capital gains and dividends from stocks are usually taxed at lower rate.
  • You can’t redeem your savings bonds at all during the first 12 months. I believe there is a small exception if you can show yourself to be affected by an official natural disaster.
  • If you redeem within the first 5 years, you will be subject to an early redemption penalty of your last 3 months of interest.
  • TIPS are analyzed more deeply by financial professionals, and have not been found to lie on the “efficient frontier” curve. Thus, it is also unlikely that I bonds will optimal in that way.
  • You may not want to open and track a separate Treasury Direct account just to hold your I Bonds.
  • If you lose your online login and password to TreasuryDirect.gov and someone jumps through all the hoops necessary to steal your electronic I bonds, then the US Treasury will not reimburse you. If you lose paper bonds, there is a replacement policy.

TIPS vs. I Bonds.
Both have interest that both linked to inflation and is exempt from state/local taxes. You should compare the fixed rate from I Bonds with the current real rate in the TIPS market. Things that might make I Bonds more attractive than TIPS include the tax-deferral ability and the ability to avoid taxes when spent on qualified educational expenses. Things that might makes TIPS more attractive are the intra-day liquidity at all times and the ability to buy unlimited amounts via your choice of broker.

I own both TIPS and I Bonds in my personal portfolio. Inflation-protected bonds are part of my chosen asset allocation, and I prefer to use a lot of my tax-deferred account space for REITs. Series I Bonds allow me to own inflation-linked bonds in effectively a tax-deferred manner. I may also be able to use the interest tax-free for educational expenses as I have three young kids with 12-16 years to go before college.

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