Trading News

This month may be the time to buy an I bond

0

S&P 500

3,639.66

-104.86(-2.80%)

 

Dow 30

29,296.79

-630.15(-2.11%)

 

Nasdaq

10,652.40

-420.91(-3.80%)

 

Russell 2000

1,702.15

-50.36(-2.87%)

 

Crude Oil

93.20

+4.75(+5.37%)

 

Gold

1,701.80

-19.00(-1.10%)

 

Silver

20.16

-0.50(-2.42%)

 

EUR/USD

0.9743

-0.0052(-0.54%)

 

10-Yr Bond

3.8830

+0.0570(+1.49%)

 

GBP/USD

1.1098

-0.0071(-0.63%)

 

USD/JPY

145.3500

+0.2820(+0.19%)

 

BTC-USD

19,527.32

-465.82(-2.33%)

 

CMC Crypto 200

445.50

-9.53(-2.09%)

 

FTSE 100

6,991.09

-6.18(-0.09%)

 

Nikkei 225

27,116.11

-195.19(-0.71%)

 

Sometimes it’s the simplest do-it-yourself investments that make the most sense, especially as inflation shrinks buying power and stock market continues to disappoint.

The Treasury Department’s inflation-protected I bonds may not be sexy, but they certainly are tempting. If you buy one between now and the end of October, you’ll earn a composite interest rate of 9.62% for the first six months you hold the bonds.

But move fast. The new semi-annual rate, which is calculated from a formula based on the CPI index from March through September, is expected to slip to around 6% in early November when the new rate is set.

“For investors who haven’t taken advantage of their I bond purchase allotment so far this year, snapping up the bonds with the current 9.6% interest rate is a smart idea,” Christine Benz, Morningstar’s director of personal finance, told Yahoo Money.

“When new I bonds are issued in November, their yields are apt to be a bit lower, reflecting that inflation has ticked down a bit in recent months. Because they offer a fixed rate as well as an inflation adjustment, I-bonds do a better job of protecting investors’ purchasing power in an inflationary environment than do nominal bonds, which don’t offer an inflation adjustment.”

Because they offer a fixed rate as well as an inflation adjustment, I-bonds do a better job of protecting investors’ purchasing power in an inflationary environment. (Photo Credit: Getty Creative)

Why the interest rate expected to drop

The Treasury Department has a special formula for calculating the composite rate of return. It combines a fixed rate set when the bond is issued which never changes over its 30-year life, and a variable rate, which is reset twice a year in May and November and is based on the six-month change of the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy.

The reasoning behind the anticipated drop in the rate is that consumer price increases have eased in recent months with the main CPI index up 0.1% in August.

“The I bond inflation rate that will be announced in November will be based on the difference between the CPI-U figures of March and September,” Ken Tumin, founder and editor of DepositAccounts.com, a bank account comparison site, told Yahoo Money. “We won’t know the September figure until October 13, but based on the figures from March through August, the I bond inflation rate will likely be close to 6%.”

While the composite rate could fall to zero, it’s guaranteed not to fall below that — so you’ll definitely get your initial investment back when you redeem the bond.

In general, you can only purchase up to $10,000 in I bonds each calendar year. (Photo credit: Getty Creative)

How to purchase I bonds

You can buy I bonds with no fee from the U.S. Treasury’s website, TreasuryDirect. In general, you can only purchase up to $10,000 in I bonds each calendar year. But there are ways to bump up that amount, such as using your federal tax refund to directly buy an additional $5,000 in I bonds.

The bonds are bought in increments of $25 or more when you purchase electronically. Paper bonds are sold in five denominations; $50, $100, $200, $500, $1,000.

They earn interest for 30 years or until they are cashed in, whichever comes first. The bonds are government-backed and guaranteed to keep pace with inflation because their return is tied to the Consumer Price Index, and the interest is free from state and local taxes.

You might be able to completely or partially exclude savings bond interest from federal income tax when you pay qualified higher education expenses at an eligible institution or state tuition plan, in the same calendar year you redeem eligible I bonds. See IRS Publication 970 “Tax Benefits for Education.

The caveats for investors

There are limitations to I bonds. First, they aren’t liquid in the near term.

“Even though they’re one of the safest investments around, you need to hold them for at least a year and you’ll forfeit a quarter’s worth of interest if you redeem an I bond before five years,” Benz said.

And then there’s the ceiling on how much you can invest.

“Purchase constraints are the major caveat with I bonds,” Benz said. “Since each taxpayer can only purchase up to $10,000, plus an additional $5,000 through tax refunds, for larger investors, those purchase limits curb the utility of I bonds as a hedge against inflation. Some investors might want to augment their I bonds with holdings in Treasury Inflation Protected Securities (TIPS).”

For some investors, these bonds can seem like child’s play.

“For someone with a million dollar portfolio, it will provide very limited protection,” Ron Rogé, chairman and ceo of R.W. Rogé & Co. in Naples, Fl., told Yahoo Money. “For someone with a smaller $25,000 portfolio, it will provide much greater inflation protection.”

Moreover, you can’t buy I bonds within a traditional IRA, Roth IRA, or employer-sponsored savings plan, such as a 401(k) plan. So you’ll need to buy I bonds with savings outside of these programs.

“While we are fans of I bonds, there are some important considerations,” Lisa A.K. Kirchenbauer, a Certified Financial Planner and founder at Omega Wealth Management in Arlington, Va. told Yahoo Money. “On top of the liquidity issues, the website is not easy, and no financial advisor can help you. While this is looking like a great investment right now, there are a number of tradeoffs.”

A few ways to ramp up your I bond purchases

If you’re self-employed, your company, or Limited Liability Corporation (LLC) can purchase up to $10,000 worth of I bonds a year. The business typically must have its own TreasuryDirect.gov account and a taxpayer identification number.

In addition, you can buy I bonds as gifts for your kids if they’re under 18, provided you create a minor linked TreasuryDirect account. You and your spouse can each buy up to an additional $10,000 of I bonds for each one. You can keep the bonds in your account until you’re ready to deliver them, say, as a holiday gift this year.

Kerry is a Senior Columnist and Senior Reporter at Yahoo Money. Follow her on Twitter @kerryhannon

Read the latest personal finance trends and news from Yahoo Money.

SmartAsset

Your Target-Date Fund May Not Be Prepared For a Down Market

After around a decade of near constant growth, the stock market has been falling in recent months and we are officially in a bear market for the first time in quite a while. For younger people this is scary, but … Continue reading → The post Your Target-Date Fund May Not Be Prepared For a Down Market appeared first on SmartAsset Blog.

The Conversation

New satellite mapping with AI can quickly pinpoint hurricane damage across an entire state to spot where people may be trapped

New satellite mapping techniques can quickly locate washed out and damaged areas. Ricardo Arduengo / AFP via Getty ImagesHurricane Ian left an extraordinarily broad path of destruction across much of South Florida. That was evident in reports from the ground, but it also shows up in satellite data. Using a new method, our team of spatial and environmental analysts was able to quickly provide a rare big picture view of damage across the entire state. Satellite images and artificial intelligence r

Yahoo News Video

How Kanye West became one of the most influential figures in pop culture

Love him or hate him, Kanye West has been a major force in influencing music and culture over the past 20 years. In that time, Kanye has scored numerous Grammys, married Kim Kardashian and partnered with Adidas to create the most-hyped clothing brand in years. Yahoo’s international news team explains how West paved his own way to a path of success.

Bloomberg

Chipmakers See ‘Breathtaking’ Drop in Demand as Recession Looms

(Bloomberg) — Signs are piling up that the tech downturn may be deeper and longer-lasting than feared. Most Read from BloombergBiden Says Putin Threats Real, Could Spark Nuclear ‘Armageddon’Kremlin Lets State Media Tell Some Truths About Putin’s Stalling WarMusk’s Twitter Takeover Hits Snag Over Debt-Financing IssueNord Stream Leaks Caused by Detonations in Sign of SabotageBiden Should Hit Saudi Arabia Where It Really HurtsAfter years of record capital spending, chipmakers are warning on a week

Motley Fool

By Doing This One Thing, Graham Stephan Says Households Are ‘Losing’ to Inflation

According to real estate agent and investor Graham Stephan, the average American household has $10,000 worth of savings, but you may lose out to inflation if you keep your money in a checking account. Think of an emergency fund as insurance that protects you if (and when) an unexpected expense occurs. By socking away money in an emergency fund, you don’t need to rely on your everyday funds or pull money from other investments to cover expenses when disaster strikes.

GOBankingRates

Social Security Schedule: When October 2022 Benefits Will Be Sent

The Social Security payment schedule for October 2022 will be business as usual for most people, though recipients who qualify for Supplemental Security Income (SSI) won’t be getting a payment due to…

Reuters

Suspect arrested for murder, kidnapping of California family

A suspect has been arrested on murder and kidnapping charges after four members of a California family, including an 8-month-old girl, were found dead in a rural area two days after their abduction, authorities said. The Merced County Sheriff’s Office said on Facebook on Thursday night that it had booked Jesus Manuel Salgado, 48, into jail on four counts of murder and kidnapping. Salgado is accused of kidnapping Jasleen Kaur, 27, her baby girl Aroohi Dheri, the baby’s father Jasdeep Singh, 36, and the baby’s uncle, Amandeep Singh, 39.

Reuters

Italy adopts new LGBT strategy just before right-wing takeover

Italy’s outgoing government has adopted a new plan for LGBT rights just before handing over the reins to a right-wing administration that promises to be far more socially conservative. “We weren’t very ideological, we were very concrete,” Equal Opportunities Minister Elena Bonetti told Reuters on Friday, saying the contents of the document were not controversial. Nevertheless, they immediately jarred with prime-minister-in-waiting Giorgia Meloni and her post-fascist Brothers of Italy party, which won a Sept. 25 election partly on pledges to defend the “traditional family” and resist “LGBT lobbies”.

Bloomberg

Fed Headed for 4.5%-4.75% Interest Rate by Early 2023, Evans Says

(Bloomberg) — The Federal Reserve’s benchmark interest rate will probably be at 4.5% to 4.75% by next spring as central bank officials worry about high core inflation, Chicago Fed President Charles Evans said.Most Read from BloombergMusk’s Twitter Takeover Hits Snag Over Debt-Financing IssueNord Stream Leaks Caused by Detonations in Sign of SabotageKremlin Lets State Media Tell Some Truths About Putin’s Stalling WarTrump Says US Agency Packed Top-Secret Documents. These Emails Suggest Otherwise

Benzinga

3 Reasons To Invest In Treasury ETFs Over Treasuries Themselves

Treasury bills are short-term U.S. government securities with maturities ranging from a few days to 52 weeks. Bills are sold at a discount from their face value. A Treasury note is a U.S. government debt security with a fixed interest rate and maturity between two and 10 years. Alexander Morris, F/m Investment’s president, CIO and co-creator of the U.S. Benchmark Series, said that his organization believes that “the U.S. Benchmark Series will revolutionize the financial markets, making the most

SmartAsset

With Bond Funds Battered, Investors Might Want to Climb a Treasury Ladder

In times of changing interest rates, Wall Street traders like to say, “Don’t fight the Fed.” With returns on bond funds plummeting that could be good advice for fixed-income investors, too. Let’s take a look at why bonds are plummeting … Continue reading → The post With Bond Funds Battered, Investors Might Want to Climb a Treasury Ladder appeared first on SmartAsset Blog.

GOBankingRates

Homeownership 101: These 6 Factors Really Impact Your Property Value

A home’s value is dependent on multiple factors, those that are tied to the property and external circumstances, like the state of the economy and capital markets. Read Next: 9 Bills You Should…

KDFW

Ezekiel Elliott hates the drive from Frisco to Arlington

The Good Day team reacts to comments from Dallas Cowboys running back Ezekiel Elliott, who said he didn’t go to the Rangers game to see Aaron Judge’s historic home run because he hates driving to Arlington. What about you? Will you make that trip on a weekday?

Blast damages only bridge linking Russia and Crimea; Zelenskyy advisor calls it ‘the beginning’

Previous article

Weekend reads: How the Fed’s punishing policy can set you up for massive gains in the stock market

Next article

You may also like

Comments

Leave a reply

Your email address will not be published. Required fields are marked *

More in Trading News