How to Buy I Bonds for 9.62% Guaranteed APY 

What if I told you that there was a guaranteed way to make 9.62 interest on your money? Well, it is possible through treasury I bonds and I’m going to show you exactly how to invest in them. Now during uncertain and bearish times in the markets investors like us are desperately searching for safe, secure and reliable places to store our money. There are plenty of available options that allow you to earn small amounts of interest which, as you know, is sky-high right now and just means that your money is losing value. 

Well, government-issued series I bonds allow for a guaranteed way for you to beat out inflation. I truly believe that they are something that everyone should have now. What exactly are they so serious about? Are bonds that are sold by the US treasury and were created in the late 90s to provide stable returns for investors as well as protect their purchasing power. These assets specifically earn a combined fixed interest rate and a variable inflation rate that changes every six months. So, why should you buy them right now? Well, right now, investors are largely feeling unsure or bearish about the current stock market.

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So, investing your money in shares may not be the safest option at the moment because of this negative market sentiment. It seems like bonds and I bonds in particular are a really reliable place to put your money right now because the government always needs money from the people. But here’s the problem the feds continue to increase interest rates which will cause bond prices to falter. This is destroying the bond market as we speak for example the vanguard total bond market index fund. Admiral shares have been suffering heavily this past year on top of that. We’re looking at historically high inflation rates which also diminishes the value of most low-yield bonds, fortunately. This is why we go to series I bonds to save the day. The first question that you are probably asking is why are series I bonds inflation-proof? So, these are inflation-proof because they pay you a fixed rate of return, as well as a variable rate of return that changes as economic inflation changes too. And what’s even crazier, is that series I bonds provide guaranteed returns which also essentially makes them crash proof.

 This feels like a cheat code in the bond market. But these assets are fully real and perfectly legal in fact. They’re literally sponsored by the US treasury. So, now how do series I bonds work before investing anything? It’s really important to understand what you’re investing in and how it works. So, basically with series I bonds you’re earning monthly interest that is added to your bond every six months more specifically. You are earning a fixed interest rate that doesn’t change plus an inflation adjustment rate that changes annually. Now this interest rate can build up for 30 years or up until the point you sell at your bonds now before we talk about the things that make series I bond so great.

Let’s first discuss the disadvantages. Trust me. There are not a lot. Let’s say that the biggest disadvantage for series I bonds is probably the lock-up period. Basically, you have to hold the series I bonds for a minimum of one year. If you’re unable to hold the bonds for this long, you’ll have to pay a penalty. I, personally, don’t think the one-year lock-up is a disadvantage in 2022 especially with the markets being the way. They’ve been the rising inflation that’s occurring throughout the entire economy will have all market values edging higher and higher for years to come. Another lock-up penalty that may occur is that. If you sell your savings bonds before five years, you lose the interest of your most recent three months. But if you sell after five years, you won’t be charged a penalty to me.

The lock-up period is not counterproductive to your gains by encouraging the investor to treat these series I bonds as long-term investments investors can reap the most benefits due to changing inflation over the course of several years. Another disadvantage of series I bonds is that the inflation rate that goes into the interest you earn changes every six months. On top of that you are only making money as long as inflation increases but this really shouldn’t be a surprise because series I bonds were literally invented to protect the purchasing power of investors from inflation. I’d say that the final con to consider is that you owe federal income taxes on the bonds that you sell. But, of course, this is a given with any money-making asset you own and isn’t exclusive to series I bonds. That’s why I’d say that this is not actually a real disadvantage so yeah I think it’s pretty obvious that these shortcomings. I just talked about aren’t that serious and as you will see shortly they do not nearly outweigh the benefits.

Let’s talk about the benefits. The first benefit to consider is that you the investor are guaranteed an interest rate of seven to ten percent. This is a really high yield especially compared with the rates of other bonds serious I bonds protect you from inflation and it’s commonplace for any investor to be concerned about how inflation will affect their earnings and investments because series I bonds are guaranteed by the US treasury. These assets can also protect you from market crashes compare this condition with private assets where if the market crashes and burns private companies cannot guarantee your money back. The other big advantage is tax-related while you owe federal taxes on your series I earnings.

You do not owe state or local taxes. So, if you’re living in a high income tax state like california this means that you’re going to save a good chunk of money and speaking of tax-related benefits. Did you know that your interest earnings through series I bonds can be excluded from federal income tax when they are used to finance education? In other words, if you use the money you earn from series I bonds to let’s say pay for your child’s college education, for example, you can actually avoid paying federal taxes on them. This can only happen if the bond is redeemed and the earnings are used in the same calendar year. I just want to reiterate that you can only buy 10 000 worth of bonds per year electronically on treasury direct. You can buy up to five thousand dollars’ worth of paper bonds per year too and to qualify for these purchases. You do need to be a US citizen or resident with a social security number. 

This article is a transcription of a video made by Charlie Chang

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