I bonds have been trending as rates reached their highest levels since their debut. Here’s what you need to know if you are considering adding them to your investment portfolio.
· You can only buy up to $10,000 per tax id per calendar year
· You earn a fixed rate plus a variable rate that changes every six months
· You can only buy from treasurydirect.gov
· You can’t sell for one year after purchase
· You’re penalized three months of interest if sold before five years
Amount
You can only buy I bonds in amounts of up to $10,000 per tax identification number per calendar year. This makes it challenging for larger investment portfolios to establish a relatively meaningful allocation to it.
Rates
I bonds earn monthly interest with two parts: a fixed rate and a variable rate. The fixed rate may change every six months (May and November) for new purchases but stays the same after buying, and the variable rate shifts every six months based on inflation. The fixed rate for I bonds issued from November 2022 through April 2023 is 0.40% and the composite rate is 6.89%. Given expectations for inflation to come down, I bonds could still be prudent for the short to medium term.
Buying
You can only buy them directly from the government via their website: treasurydirect.gov. This is noteworthy, as their website recently crashed due to a flood of demand and been considered a hassle and challenge to navigate.
Selling
You can’t redeem these bonds for a year after you purchase them, and you’ll owe a penalty equal to three months’ interest if you cash out any time over the first five years of owning the bond. Therefore, owning these may not be right for you unless you already have a well-funded emergency reserve and don’t need this money within the next 12 to 15 months.
Sources: https://cnb.cx/3zwcDus
Views expressed are as of the date indicated and are not intended to serve as investment advice, tax advice, a recommendation, offer, or solicitation to buy or sell any securities; they are based on the information available at the time and are subject to change based on economic, capital market, and other conditions. Any investment decision should be based on an individual’s own goals, time horizon, and tolerance for risk.
Prior performance does not guarantee future results and there is the potential for the loss of your capital investment.
Information and data provided have been obtained from sources deemed reliable but are not guaranteed.
