W.I.T. #43 - Are I Bonds Worthwhile?
With new rates just announced, investing in I bonds may be worth considering.
Three Things Worth Sharing
Legacy Letter Event - Last week we hosted a great presentation from Blake Brewer about writing a legacy letter to someone you love. You can watch the replay on the Trinity Financial homepage of the Legacy Letter Challenge and also sign up for the follow up class to help guide you in writing your own legacy letter.
Consumer Spending Remains Strong - American consumers continued to be champion buyers, as evidenced by September retail sales that were way above estimates.
Another Thought on Legacy: No Regrets - A thought-provoking essay by a woman who found out she has terminal cancer at age 49, but why she doesn’t feel full of regret.
Subscribe to our bi-monthly "What I'm Thinking" newsletter for more fun and useful content like this. To sign up please fill in the form at the bottom of our home page.
***
VIDEO TRANSCRIPT:
John Scherer: Are iBonds still worthwhile? That's what I'm thinking. Just last week, the Treasury announced their new rates for I bonds, those inflation-protected bonds we've talked about in the past. And, the new rates that are available now for bonds purchased from November through April is just over five and a quarter percent.
So a pretty nice rate for a guaranteed fixed tax-deferred investment. And so it has me thinking about those again. Quick refresher on those I bonds. Those are the ones you can only buy up to $10,000 per person per year. You can't get into it at all within the first year. And if you sell it within five years, you have to give back three months of interest, right?
And you have to use the Treasury Direct website, which is, it can be a hassle. You can't buy it through Schwab or anyplace else, right? So some rules that go around it, but remember a couple of years ago, we were talking about these because they were paying nine percent and seven percent annualized interest.
I mean, a really great deal. Even when, after you gave back three months of interest on the short run, and then as inflation sort of tapered down into the last six months, they were getting something like three and a half percent. And so we were talking with folks about, geez, does it make sense to keep those things?
Again, three and a half percent is not a terrible rate, right? But compared to now, bank accounts and CDs are catching up. It's not the slam dunk it used to be. And the discussions we had were, Hey, on the short-term hit thing, you know, yeah, it's not necessary to keep those guys. However, if you're concerned about inflation in the long term, and you're going to have some cash reserves...inflation kicks back in again, and these could be in a good spot with things.
So that brings us to back now to what, what the, the current rate is this five and a quarter percent. Importantly, it's not that the inflation amount adjusted that much, but remember on those I bonds, there's a fixed rate, a guaranteed rate, and then the inflation-based variable rate.
Well, you know, a few years back and for a long time now. the base rate had been at zero, then they ticked up a little bit. Now they've ticked up a little bit more. There's a five-and-a-quarter rate, but of that, 1.3 percent of that is the base guaranteed rate.
And you get that as long as you keep this bond, you can have that base rate for 30 years. And that might not sound like a lot, 1.3%, but remember, it was just two years ago, right? Fall of 2021, the 10-year Treasury locking your money up for 10 years, you were only getting one and a quarter or one and a half percent on that, right?
So to have this inflation-adjusted bond now where the base guaranteed rate is at that. 1.3 percent level could be useful, could be appealing in the right circumstances with things. So it's worth considering, you know if you haven't bought any recently, if you have extra cash, maybe you're looking at buying a CD, you know, these I bonds are back in, in the position where it makes sense to at least consider them.
Some drawbacks, right? You've got to deal with that Treasury Direct website, but it's something that should be back on our radars. So that's what I'm thinking about. As always, interested in knowing what you're thinking about. If you're watching this on YouTube, jot a comment in the comment box or shoot me an email directly.
And as always, thanks for watching.
John Scherer CFP® is a fee-only certified financial planner based in Middleton, Wisconsin. John has over 20 years of experience advising clients on personal tax, investment, and financial planning. You can reach him by email at john@trinfin.com.