Is it time to invest in I-Bonds? If you have ever thought about investing your money in government secured I-Bonds, now might be a great time to dive in. I-Bonds offer inflationary adjusted returns and are a great option for individual investors to park some of their hard earned cash in a guaranteed instrument that offers the safety and protection of the the US government. Up until a few weeks ago, I hadn’t really thought about government bonds as a useful investing tool as I suspected you couldn’t get much of a return on them. But because I-Bonds are pegged to inflation, they are becoming a much more attractive tool for savers these days, especially now with inflation soaring to record levels.
How much interest can you earn from I-Bonds?
The current yield on I-Bonds is 9.62%. These bond instruments have variable interest rates that are re-calculated once every six months and are typically set in May and November of each year. Your I-Bond portfolio earns interest at the prevailing rate and will protect your money against inflationary pressure during varying economic cycles while paying you a set amount of interest each month. These bonds are special because they also compound once every six months and continuously increase in value the longer you hold them.
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How to invest in I-Bonds
Investing in I-Bonds is relatively simple. Just open an account at TreasuryDirect.gov and transfer however much you want (up to $10,000 annually) into your account. You can also buy an additional $5,000 in paper I-Bonds for a total of $15,000 annual investment. I-Bonds are sold in any denomination over $25 dollars, while paper bonds are only issued in denominations of $50, $100, $200, $500, and $1000.
How to cash in I-Bonds
I-Bonds are longer-term investments and are structured that way to encourage savings. They must be held for at least a year before cashing them in. You will incur a three month interest penalty if you cash them in between years 2-5, and there is no penalty for cashing them in after year 5. Whenever possible, you should hold your I-bonds for the full term of 5 years to protect the interest that you’ve gained on your investment.
Who should invest in I-Bonds?
After you’re sure that you have all of your monthly obligations covered plus a cash-reserve for at least a year of living expenses, you should consider I-Bonds for at a least a portion of your portfolio. With the federal reserve raising interest rates and the stock and bond markets doing terribly, I-Bonds are an attractive alternative to park some of your cash. Personally, I’m investing between 3% and 5% of my net income in I-Bonds. Each person considering this investment will have to assess their own personal financial situation to determine the amount they would like to invest.
Who else like I-Bonds?
If you don’t believe me, listen to what Suze Orman has to say about I-Bonds. She’s apparently been holding them in her portfolio since 2001!