I Bought I Bonds
Jun. 11th, 2022 05:26 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
canyonwalkerSeveral weeks ago I bought some US Savings Bonds. Yes, the tool my grandparents used for savings is still around! And it's still relevant, too.
Just how old-fashioned are savings bonds? Consider that in the movie Captain America the third act (using a Shakespearean 5-act model) is all about the title character hawking savings bonds in, like, 1943:
Yes, as I bought my bonds I hummed, "I'm the star-spangled man with a plan!" 🤣
What I bought, though, are Series I Savings Bonds, or I-Bonds for short. They're a newer creation, dating to only 1998, that work a bit differently than the classic savings bonds created back in 1935. Here are Five Things about I Bonds:
1) I Bonds pay a variable rate that is indexed to inflation. That's created renewed interest in the them as inflation spikes to high-single-digit rates not seen in 40 years.
2) The rate on I Bonds is set every 6 months, in May and November. Smart investors rush to buy them in late April and October, when they can still lock in the current rate for 6 months and can also estimate, based on published reports about inflation, what the rate for the next 6 months will be. For example, the rate in April was 7.12%. In May it jumped to to 9.62%. These are phenomenal, risk-free rates in the current investment market!
3) Once purchased, an I Bond cannot be redeemed for 12 months. There are some exceptions for specific hardship cases, but basically the money's locked up for 12 months. This makes it a tool that's not for everyone.
4) After 12 months an I Bond can be redeemed, but doing so forfeits the last 3 months of interest. At 5 years a bond can be redeemed anytime without penalty.
5) There's a limit of $10,000 per year, per individual, on buying I Bonds. That's a clue that there's something special there. Treasury bonds, for example, can be bought by the billions by institutions. They pay a way lower rate. There's a low limit on I Bonds because their high rate, at times of inflation like now, is the government doing a solid for middle class savers.
Just how old-fashioned are savings bonds? Consider that in the movie Captain America the third act (using a Shakespearean 5-act model) is all about the title character hawking savings bonds in, like, 1943:
Yes, as I bought my bonds I hummed, "I'm the star-spangled man with a plan!" 🤣
What I bought, though, are Series I Savings Bonds, or I-Bonds for short. They're a newer creation, dating to only 1998, that work a bit differently than the classic savings bonds created back in 1935. Here are Five Things about I Bonds:
1) I Bonds pay a variable rate that is indexed to inflation. That's created renewed interest in the them as inflation spikes to high-single-digit rates not seen in 40 years.
2) The rate on I Bonds is set every 6 months, in May and November. Smart investors rush to buy them in late April and October, when they can still lock in the current rate for 6 months and can also estimate, based on published reports about inflation, what the rate for the next 6 months will be. For example, the rate in April was 7.12%. In May it jumped to to 9.62%. These are phenomenal, risk-free rates in the current investment market!
3) Once purchased, an I Bond cannot be redeemed for 12 months. There are some exceptions for specific hardship cases, but basically the money's locked up for 12 months. This makes it a tool that's not for everyone.
4) After 12 months an I Bond can be redeemed, but doing so forfeits the last 3 months of interest. At 5 years a bond can be redeemed anytime without penalty.
5) There's a limit of $10,000 per year, per individual, on buying I Bonds. That's a clue that there's something special there. Treasury bonds, for example, can be bought by the billions by institutions. They pay a way lower rate. There's a low limit on I Bonds because their high rate, at times of inflation like now, is the government doing a solid for middle class savers.
