OPINION: This overlooked investment gives you 30 years of tax-deferred growth and will carry yields possibly as high as 7.8%.
How would you like to earn a guaranteed 6.7% or more on your money without taking any risk? Although it sounds too good to be true, that’s exactly the opportunity that will be offered on Nov. 1. The investment? Series I savings bonds.
The inflation rate component of the yield adjusts twice a year—the first business days of May and November. The semiannual inflation rate for I bonds being currently sold is 1.77%. This determines the interest earned over the next six months. Double it and you get the bond’s annual percentage rate , which would be 3.54%.While 3.54% isn’t bad, the new rate in November is all but guaranteed to be much higher. My guess is that I bonds issued then will carry yields of at least 6.
Of course, the rate would only apply for six months. In May 2022, the rate would be adjusted once again. If the Fed’s transitory thesis is correct, and inflation slows next year, the interest rate on I bonds would fall. On the other hand, if inflation persists or accelerates, I bond yields would remain high and vastly outperform money-market funds and savings accounts.
How many I bonds can you purchase? There’s an annual limit of $10,000 per individual. That means a married couple with two children could buy up to $40,000 in total. If that family had a trust, another $10,000 could be purchased in the name of the trust, for a cumulative $50,000 in I bonds per year. Keep in mind, if you buy an I bond for a child through a custodial account, that constitutes an irrevocable gift.I bonds also enjoy favorable tax treatment.
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