How do I get a 9% Return on my Money?

In an era when interest rates are relatively low and inflation is stubbornly high, how does a conservative investor get any return on their money? The Barclays Aggregate Bond index is off to it’s worst start in years as the Federal Reserve is tightening the money supply and raising interest rates. There is no place to hide in an environment like this. Where can a conservative investor make any money?

Many of our clients have been asking about purchasing I Bonds. I Bonds are securities issued by the US Treasury that pay interest comprised of a fixed rate plus a rate based on inflation. As of April 30, 2022, I Bonds are set to pay an annualized rate of around 9.60% until the next inflation reset in six months.

Beginning May 2, 2022, I Bonds will pay an annualized interest rate of 9.62% and will reset again in November 2022.

I bonds are securities issued by the US Treasury. They are a form of savings bond and are related more to EE savings bonds than to traditional Treasury securities such as Bills, Notes, Bonds, and TIPS (click here to learn more about TIPS).

I Bonds are issued in 30- year durations and interest is accrued monthly and paid out semiannually. The interest rate is adjusted every six months and has a fixed component and a component that adjusts for inflation. The I bonds can be redeemed at any time after the first 12 months, however they are subject to a penalty of 3 months interest if redeemed within the first five years.

How Do I Buy I Bonds?

I Bonds can be purchased directly from the US Treasury and come in electronic form. If you purchase them electronically, they come in any denomination to the penny. You can also purchase them in paper form with money from your income tax return. Paper bonds can be purchased in denominations of $50, $100, $200, $500, or $1,000. In this way, you can purchase up to $15,000 per year of I Bonds ($10,000 electronic and $5,000 paper using your tax return).

In order to purchase I Bonds you need to set up an account at Treasury Direct (click here).

Who Can Buy I Bonds?

Any US citizen or US Resident over the age of 18 can purchase I Bonds. Also, Trusts, estate, corporations and partnerships can purchase I Bonds electronically but partnerships and corporations cannot purchase paper versions.

How Are I Bonds Taxed?

I Bond interest is taxed at the Federal level but are exempt from state and local taxes. They are priced at face value so there is no capital gains or losses when redeemed. In some situation, taxes may be waived if the proceeds are used for higher education.

Are I Bonds a Good Investment?

I Bonds can be a good option for risk averse investors. The yield is excellent on them right now. There is essentially no credit risk and will generally keep up with inflation. The only downside is you can only purchase them in limited amounts, and you have to do so through Treasury Direct and your advisor can not do it for you.