It’s Not Too Late to Buy I Bonds!
For those of you that haven’t yet gotten around to buying an I Bond yet this year or if you haven’t bought your full $10K allotment, there is some good news…. You can still do before October 31 and get the 9.62% interest rate for the first six months. After November 1, the interest rate on new I Bonds (and those that have been held for 6 months) will go down – probably to the 6% range. That’s still not bad, but it’s not 9.62%!
The process is a bit clunky, but we have some tools to help make it a little easier for you to do or we can do it with you on the phone. Just let us know if you need help.
Refer back to Bernie’s Blog of Jun 11 for all the details or just keep reading… I have copied the text from the June 11 Bernie’s Blog post below:
Most of you have probably heard of I Bonds by now, either from us or from your favorite media personality. Let’s talk about what these actually are and who can benefit. Spoiler alert, if you are reading this, you can most likely benefit!
What is an I Bond and how does it differ from a TIP?
I Bonds are inflation adjusted 30-year U.S. savings bonds. The inflation adjustment happens twice per year and is based on the Consumer Price Index (CPI). From now until October, the annual variable interest rate (coupon) is 9.62%. No really, 9.62%. These are U.S. treasuries so 100% safe, the actual value of the bond does not fluctuate, and the interest is added to the bond value every six months. These bonds are also tax efficient because the interest is only subject to Federal income taxes and only when the bond matures or is sold.
Since many of you own TIPs (Treasury Inflation Adjusted Notes), you are undoubtedly asking yourself if these are different. The answer is that they are different in some important ways, but they complement each other perfectly. First of all, for a TIP, the coupon rate stays constant throughout the bond life but the principal amount on which the coupon rate is applied is adjusted twice per year, based on the CPI. TIPs are great for long term inflation protection, and we like them, especially in IRA’s because the TIP interest and inflation adjustment are taxed every year at your full tax rate. There is also no dollar limit on TIP purchases, and you can own TIPs in your Ameritrade accounts and sell them at any time.
Are I Bonds too good to be true?
I Bonds are not too good to be true BUT there are some important limitations:
Each person can only purchase $10K in electronic I Bonds each year. There are no income or age limitations. They can also be purchased for children (and grandchildren!). Minors can own I Bonds but they can’t have their own Treasurydirect account.
These must be purchased via the Treasurydirect website and held at the Treasury. The account set up and purchase is a bit of a clunky process, but we can help you. I Bonds cannot be owned in brokerage accounts or IRA’s or your bank.
These bonds must be held for at least 12 months. If they are sold between 1 and 5 years, there is an interest penalty of three months. I Bonds will earn interest for up to 30 years, but obviously when inflation moderates, they will become less attractive.
Each I Bond can have only one beneficiary.
Are I Bonds for me and how do I get started?
In general, I Bonds are for you, as long as you have enough cash remaining in your cash reserve after the purchase to sustain you for at least one year, and preferably 5 years. We will discuss individually with you this quarter but feel free to call if you want to discuss now. Obviously, the sooner you purchase, the more interest you will earn!
As I said above, the process is a little clunky with a lot of information, multiple passcodes/security questions and double factor authentication required. Because these are not held at Ameritrade, our normal “do for you with your approval” process does not work. We have developed a form for you to use on your own so that you have all the info you need in front of you when you begin the process, and we are also happy to undertake a “do with you” process to open the account and buy these I Bonds.
Happy to answer questions and to help!