There’s not much good to say about inflation, with higher prices dogging consumers at the grocery store and the gas pump. But there is one bright spot: Government I bonds are earning eye-popping rates.
New I bonds — low-risk federal savings bonds indexed to inflation — issued through the end of October will earn an annualized rate of 9.62 percent for six months, the Treasury Department announced this week. The rate also applies to older I bonds that are still earning interest.
That represents the highest inflation rate the bonds have earned since they were introduced in 1998, said Ken Tumin, the founder of the financial website DepositAccounts.com. It means I bonds are earning far more than a typical federally insured savings account or certificate of deposit.
Because of the way rates are set on I bonds, people holding older bonds may be earning double-digit rates. An I bond rate has two parts: A fixed rate, set when the bond is issued, which stays the same for its 30-year life; and a variable rate, which is based on the six-month change of the Consumer Price Index and can reset twice a year, in May and November. The Treasury Department applies a formula to combine the two into a composite rate.
The fixed-rate component is currently zero — but it has been 3 percent or higher in the past. I bonds purchased through early 2001 are currently earning more than 13 percent, if holders haven’t already redeemed them, according to the government’s TreasuryDirect website.
The Treasury Department doesn’t disclose its formula for setting the fixed rate, Mr. Tumin said. But as the Federal Reserve raises its benchmark interest rate, it seems “more likely” that the fixed rate on I bonds could nudge upward at the next reset in November, Mr. Tumin said.
I bonds are considered quite safe. While it’s possible that the combined rate could fall to zero (it has happened before), it’s guaranteed not to go below that — so you’ll at least get your initial investment back when you redeem the bond, according to the Treasury Department.
You can acquire up to $10,000 in I bonds per person, per year, on TreasuryDirect.gov. Plus you can buy up to $5,000 more using your federal income tax refund. (A couple filing a joint tax return can buy up to $25,000 per year.)
Keep in mind that you must hold I bonds for at least 12 months before redeeming them, and you’ll be docked the last three months of interest as a penalty if you redeem before five years.
Source: | This article originally belongs to Nytimes.com
