I Bonds Now at 9.6%. A New Rate Comes in November

[Anta Assamey]

One of the best current deals in the bond market—Treasury Series I savings bonds—is likely to get less attractive in November when a new rate on the popular investments is set.

Individual investors may want to snap up the inflation-linked I bonds before the end of October to get the current 9.6% interest rate for the first six months. The new rate, applying to bonds purchased in November, is likely to be closer to 6%, Barron’s estimates, based on the formula used by the U.S. Treasury to calculate the semiannual rate.

The main drawback of I bonds is that individuals can purchase only $10,000 a year, although an additional $5,000 can be bought using proceeds from federal tax refunds. And Americans who own certain businesses can purchase $10,000 annually in I Bonds through those entities. The I bonds need to be bought directly from the Treasury through its TreasuryDirect program.

The rate on I bonds, based on the U.S. consumer price index, hit a record 9.6% for bonds purchased starting in May and continuing through the end of October because of the inflation surge in late 2021 and early 2022. But price increases have moderated in recent months with the main CPI index up 0.1% in August. Treasury has been selling I bonds since 1998.

“You should buy now,” says John Scherer, the founder of Trinity Financial Planning in Middleton, Wis. He says the current rate compares very favorably to bank CDs.

I bond rates reflect both an inflation component based on the CPI index and what the Treasury calls a fixed rate, which now is zero. The inflation rate is set twice a year in early May and November and applies to bonds purchased in the ensuing six months. The fixed rate also will be reset in November and likely will be at or near zero.

The May interest rate of 9.6% was based on the CPI index from September 2021 through March 2022.

Treasury uses the non-seasonally adjusted CPI index, which is slightly different from the more prominent seasonally adjusted CPI that garners headlines each month. The non-seasonally adjusted CPI rose 4.8% from September 2021 through March 2022. That amount is multiplied by two to arrive at the 9.6% rate, which applies to bonds bought from May through October of this year.

The new rate, to be announced in early November, is based on the CPI index from March through September. Barron’s calculates that consumer prices were up 3% from March through August, the most recent report. Assuming little change in September prices, the new rate should be around 6%.

Investors who buy I bonds before Nov. 1 will get the 9.6% rate for the first six months they hold the bonds and then the new rate for the next six months.

“I bonds are a definitely a great safe investment to supplement your emergency funds,” says Ken Tumin, founder and editor of the Bank Deals Blog. 

I bonds need to be held for a minimum of a year and bonds redeemed before five years incur a penalty of one quarter’s interest. Tumin views the interest penalty as modest relative to bank CDs, which usually carry early-withdrawal penalties.

Two nice features of I bonds are that investors can defer paying taxes on the interest payments until maturity—I bonds can be held for 30 years. And I bond interest, like that on other Treasuries, is exempt from state and local taxes, a contrast with bank CDs and corporate bonds.

A risk with I bonds is that inflation declines and results in lower interest rates in the coming years. That is a distinct possibility with the markets discounting inflation of about 2.5% over the next five and 10 years. But if inflation stays stubbornly high, I Bonds will look particularly good.

Investors who want inflation-linked bonds also can purchase Treasury inflation-protected securities (TIPS), which are auctioned regularly by the Treasury and available through TreasuryDirect and banks and brokerage firms. They are issued with maturities of five, 10 and 30 years. TIPS aren’t subject to caps on purchases by individuals.

An advantage of TIPS over I Bonds is that they now offer a real, or inflation-adjusted interest rate, of about 1%, meaning holders get the inflation rate plus 1%. Prices of TIPs, however, can fluctuate and have fallen this year as real yields have moved from negative 1.5% to positive 1%. The real yield on I bonds is now zero.

A lower risk way to own TIPS is through ETFs like the iShares 0-5 Year TIPS Bond ETFSTIP –0.30%  (ticker: STIP) that now carries a total yield of nearly 10% based on a calculation using Securities and Exchange Commission guidelines. Its real yield is about 1.5% and that is supplemented by the inflation adjustment

[phatposts]

if it really goes to 6%, stock market will rally for a couple of weeks. 

[KaipuRaja]

3 hours ago, Anta Assamey said:

One of the best current deals in the bond market—Treasury Series I savings bonds—is likely to get less attractive in November when a new rate on the popular investments is set.

Individual investors may want to snap up the inflation-linked I bonds before the end of October to get the current 9.6% interest rate for the first six months. The new rate, applying to bonds purchased in November, is likely to be closer to 6%, Barron’s estimates, based on the formula used by the U.S. Treasury to calculate the semiannual rate.

The main drawback of I bonds is that individuals can purchase only $10,000 a year, although an additional $5,000 can be bought using proceeds from federal tax refunds. And Americans who own certain businesses can purchase $10,000 annually in I Bonds through those entities. The I bonds need to be bought directly from the Treasury through its TreasuryDirect program.

The rate on I bonds, based on the U.S. consumer price index, hit a record 9.6% for bonds purchased starting in May and continuing through the end of October because of the inflation surge in late 2021 and early 2022. But price increases have moderated in recent months with the main CPI index up 0.1% in August. Treasury has been selling I bonds since 1998.

“You should buy now,” says John Scherer, the founder of Trinity Financial Planning in Middleton, Wis. He says the current rate compares very favorably to bank CDs.

I bond rates reflect both an inflation component based on the CPI index and what the Treasury calls a fixed rate, which now is zero. The inflation rate is set twice a year in early May and November and applies to bonds purchased in the ensuing six months. The fixed rate also will be reset in November and likely will be at or near zero.

The May interest rate of 9.6% was based on the CPI index from September 2021 through March 2022.

Treasury uses the non-seasonally adjusted CPI index, which is slightly different from the more prominent seasonally adjusted CPI that garners headlines each month. The non-seasonally adjusted CPI rose 4.8% from September 2021 through March 2022. That amount is multiplied by two to arrive at the 9.6% rate, which applies to bonds bought from May through October of this year.

The new rate, to be announced in early November, is based on the CPI index from March through September. Barron’s calculates that consumer prices were up 3% from March through August, the most recent report. Assuming little change in September prices, the new rate should be around 6%.

Investors who buy I bonds before Nov. 1 will get the 9.6% rate for the first six months they hold the bonds and then the new rate for the next six months.

“I bonds are a definitely a great safe investment to supplement your emergency funds,” says Ken Tumin, founder and editor of the Bank Deals Blog. 

I bonds need to be held for a minimum of a year and bonds redeemed before five years incur a penalty of one quarter’s interest. Tumin views the interest penalty as modest relative to bank CDs, which usually carry early-withdrawal penalties.

Two nice features of I bonds are that investors can defer paying taxes on the interest payments until maturity—I bonds can be held for 30 years. And I bond interest, like that on other Treasuries, is exempt from state and local taxes, a contrast with bank CDs and corporate bonds.

A risk with I bonds is that inflation declines and results in lower interest rates in the coming years. That is a distinct possibility with the markets discounting inflation of about 2.5% over the next five and 10 years. But if inflation stays stubbornly high, I Bonds will look particularly good.

Investors who want inflation-linked bonds also can purchase Treasury inflation-protected securities (TIPS), which are auctioned regularly by the Treasury and available through TreasuryDirect and banks and brokerage firms. They are issued with maturities of five, 10 and 30 years. TIPS aren’t subject to caps on purchases by individuals.

An advantage of TIPS over I Bonds is that they now offer a real, or inflation-adjusted interest rate, of about 1%, meaning holders get the inflation rate plus 1%. Prices of TIPs, however, can fluctuate and have fallen this year as real yields have moved from negative 1.5% to positive 1%. The real yield on I bonds is now zero.

A lower risk way to own TIPS is through ETFs like the iShares 0-5 Year TIPS Bond ETFSTIP –0.30%  (ticker: STIP) that now carries a total yield of nearly 10% based on a calculation using Securities and Exchange Commission guidelines. Its real yield is about 1.5% and that is supplemented by the inflation adjustment

Anyone in DB did this?

[ForEverJava]

7 minutes ago, KaipuRaja said:

Anyone in DB did this?

I have invested 20k for me and wife in june..have not put much thought just did on advice of FA

[Doravaru]

22 minutes ago, ForEverJava said:

I have invested 20k for me and wife in june..have not put much thought just did on advice of FA

I bond konnava ?

online lo cheyyocha? Any info ?

[KaipuRaja]

47 minutes ago, ForEverJava said:

I have invested 20k for me and wife in june..have not put much thought just did on advice of FA

Process endi bro? Want to do.. online lo unadi but any points to know before getting in

[JollyReddy]

2 hours ago, KaipuRaja said:

Process endi bro? Want to do.. online lo unadi but any points to know before getting in

basically u get better interest than keeping money stagnant in checking account

the %age u get today is good for 6 months.. then the interest rate changes basing on inflation

but 1 year varaku u can't draw.. then after that u have to pay penalty if you want to draw within 5 yrs..

max per person limit is 10K per calendar year so you can buy 10K on dec 31 and 10k again on jan 1.. tax refund tho u can get additional bonds..so if you get 3K tax refund in 2023 you can get these bonds and you can get 13K bonds that calendar year instead of 10K

these are the only important rules..

bottom line, if you have surplus cash and you dont want to touch it for a few years this one is good

[karna11]

31 minutes ago, JollyReddy said:

basically u get better interest than keeping money stagnant in checking account

the %age u get today is good for 6 months.. then the interest rate changes basing on inflation

but 1 year varaku u can't draw.. then after that u have to pay penalty if you want to draw within 5 yrs..

max per person limit is 10K per calendar year so you can buy 10K on dec 31 and 10k again on jan 1.. tax refund tho u can get additional bonds..so if you get 3K tax refund in 2023 you can get these bonds and you can get 13K bonds that calendar year instead of 10K

these are the only important rules..

bottom line, if you have surplus cash and you dont want to touch it for a few years this one is good

Min limit entaaa?

[ForEverJava]

2 hours ago, KaipuRaja said:

Process endi bro? Want to do.. online lo unadi but any points to know before getting in

Just treasurydirect site logged in linked bank account and bought it..I need to buy another 3k from tax refund..I will do that today..

[Abhagyudu]

Also high yield savings account..almost 2 to 2.5 estunnadu..also 3 or 6 month CDs

[nokia123]

itta bonds ye 9.6% isthe...inka stocks lo yevadu baa invest sesthadu? stock market on the way to assammmmmm

[veerigadu]

4 minutes ago, nokia123 said:

itta bonds ye 9.6% isthe...inka stocks lo yevadu baa invest sesthadu? stock market on the way to assammmmmm

Only 10k ye limit. You can’t invest more than that in calendar year 

[JollyReddy]

8 hours ago, karna11 said:

Min limit entaaa?

25$

7 hours ago, nokia123 said:

itta bonds ye 9.6% isthe...inka stocks lo yevadu baa invest sesthadu? stock market on the way to assammmmmm

it won't stay the same, changes every 6 months no.. covid inflation valla 9.6 ki vellindi but usually andulo sagam untundi

[vatchesa]

4 minutes ago, JollyReddy said:

25$

it won't stay the same, changes every 6 months no.. covid inflation valla 9.6 ki vellindi but usually andulo sagam untundi

Still 4% anna manchide kada bro

[JollyReddy]

Just now, vatchesa said:

Still 4% anna manchide kada bro

yeah better than keeping in bank.. 

only condition to think of is, if you are withdrawing before 5 years u pay 3 months interest as penalty and pay income tax for amount earned when u withdraw