May 12, 2023

Ep 118: Update – What’s going on with I Bonds Now?

118 Update What's Going On With I Bonds Now Cover

Twelve months ago, I bonds were the security to purchase.

As a refresher, I Bond rates get set at six-month intervals. Basically May to November and then November to the following May or April. A year ago at this time as inflation was raging, the treasury announced the rate on I bonds would be a 9.4% annualized rate of return, and of course that got everybody’s attention.

Join us as we discuss how the current interest rates and inflation is affecting I bonds and if they are a good investment or not.

We talked last year at this time in our episode What is an I Bond? We wanted to make sure people understood what that 9.4% stated return really meant.  First of all, it’s an annualized return and was only good for six months, not a whole year. So what you were really going to realize for your six months was 4.2%.

When the new rates were announced later in the year it was a 6.89% annualized return from November to April. t

The new rate has been announced at a 4.3% annualized return. That is for someone who purchases a brand new I Bond. So that bond is going to pay 4.3% for the next six months but it’s annualized. It’ll pay half that for the next six months and then it will change again.

Dropping to 4 point 3 sounds like a drastic change and it is in a way. But if you’re thinking long term, which we advise you do, these are really meant for folks that are parking money and cash for the long term not meant as a short-term cash holding that you’re going to flip into something else.

That whole nice big return was all a variable rate that changed now. Fast forward to this spring because interest rates are higher now.  The treasury sets a portion of that rate based on current interest rates and they set it at just shy of one. It doesn’t sound like much but it’s a 1 % guaranteed minimum that bond is going to pay you over its 30 years.  Whereas, last year the minimum rate was 0 effectively. So even though that variable rate is now lower because inflation is starting to come under control.

Holding the current bonds over the long haul may actually be a better choice depending on what interest rates to inflation does in the meantime.

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