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If you are looking for ways to combat rising prices, inflation-protected bonds I and an almost risk-free asset can now be even more attractive.
Bonds I are paid at an annual rate of 9.62% until October 2022, the highest return since its introduction in 1998, according to the US Treasury Department. announced Monday.
The increase is based on March data from the Consumer Price Index, p annual inflation rose by 8.5%according to the US Department of Labor.
“This is an important milestone for I bonds,” said Ken Tumin, founder and editor of DepositAccounts.com, which closely tracks these assets.
Bonds I, supported by the U.S. government, do not lose value and receive monthly interest based on two installments, a fixed rate and a variable rate, which change every six months.
While the variable rate is 9.62% by October 2022, the fixed rate remains at 0%. according to the Treasury.
The fixed rate remains unchanged over the 30-year term of the bond, which means that anyone who buys bond I with a higher fixed rate can beat inflation for at least six months, Tumin said.
Although the fixed rate has been 0% since May 2020, it has reached a high of 3.6% in the six months since May 2000. You can see the history of both bets here.
There are only two ways to purchase these assets: online TreasuryDirectlimited to $ 10,000 per calendar year for individuals or using a federal tax refund to buy an extra $ 5,000 in paper I bonds. There are redemption details for everyone here.
You can also purchase more I bonds through businesses, trusts or estates. For example, a married couple with separate businesses can buy $ 10,000 per company plus $ 10,000 each person, which is $ 40,000.
One of the disadvantages of I bonds is that you can’t redeem them for at least one year, said certified financial planner George Gallardi, founder of Coromandel Wealth Management in Lexington, Massachusetts. And if you cash them out in five years, you’ll lose interest for the previous three months just before the sale.
“I think it’s decent, but like everything else, nothing is free,” he said.
Another possible drawback is lower future profitability. The variable portion of bond rates I may decrease every six months, and you may prefer higher-paying assets elsewhere, Gallardi said. But there is only one year of commitment with a three-month penalty if you decide to cash out early.
However, I bonds may need to be considered for assets outside of your emergency fund, said Christopher Fleiss, CFP and founder of Resilient Asset Management in Memphis, Tennessee.
“I think Bonds I is a great place where people can put money they don’t need right now,” he said, for example, as an alternative to a one-year certificate of deposit.
As of May 2, the average return on savings accounts is less than 1%, and most annual CDs pay less than 1.5%, according to DepositAccounts.
“But bonds I are not a substitute for a long-term fund,” Fleiss added.