U.S. Government I Bonds to Pay 9.62% Beginning May 2022

We first wrote about U.S. Series I Savings Bonds in October 2021 when U.S. inflation rates began to rise.

The reason? Well, since the rate I Bonds pay is connected, partially, to the U.S. inflation rate, these investment options began garnering more and more attention as a decent option for earning a good return on your money and we wanted to let our readers know.

For clarification’s sake, the I Bond’s yield is a combination of a fixed rate (which is currently 0%) and a variable inflation rate which is calculated twice a year based on the Consumer Price Index for all Urban Consumers (CPI-U).

And since the U.S. economy has seen a significant increase in the inflation rate over the past year or so, it’s the variable (CPI-U) rate that was, and is, making I Bonds so attractive.

The previous CPI-U calculation was released October 13, 2021 – and it showed inflation rose 3.56% March to September 2021.

This increase meant the inflation-adjusted rate of I Bonds rose to 7.12%, annualized, for six months, November 1, 2021, through April 30, 2022.

With that 6-month period coming to an end April 30, it’s now time for the I Bonds’ rate to be recalculated for the next six months.

And that recalculation is a doozy.

The CPI-U calculation for September 2021 – March 2022 showed inflation rose 4.81%, making the new rate for I Bonds 9.62%!

I Bonds will be paying a total return of 9.62% May 1, 2022, through October 31, 2022.

That’s a really nice return on an investment that is as secure as they come.

In our previous post on I Bonds, I said –

“Will this rate [7.12%] remain once recalculated for the period November 2021 – April 2022?

That’s the question. But, considering the current economic, political and health situations the U.S. and the world are facing, it’s likely inflation will stay high for at least that period. Which will lead to another six months of well-above-average returns. Although, nothing is guaranteed.”

Sure enough, inflation has not abated at all, and in some sectors gotten significantly higher, resulting in this increased rate of return for I Bonds.

If you have money you want to put to work, I Bonds remain a pretty enticing option right now.

Here are a few details associated with I Bonds and their purchase, as well as links where you can get more information.

U.S. SERIES I SAVINGS BONDS

Here’s an important point for those who may need access to money they’ve invested.

I Bonds must be held for 12 months before they can be redeemed.

Redemptions after one year, but before five years, will lose the last three months of earned interest. This is an important point to keep in mind. However, even if you want to redeem your I Bond at the 13-month mark, your earned interest minus the last three months will likely be greater than what you could have earned in any other equally safe investment such as a savings account, money market, certificate of deposit, or bond/bond fund.

Once you’ve held an I Bond for five years, there is no penalty on redemptions.

And, I Bonds can be held, tax-deferred, for up to 30 years.

I Bond Purchases

I Bonds are purchased via the U.S. Department of Treasury Bureau of the Fiscal Service site TreasuryDirect.gov.

Minimum Purchase Amount: $25 for electronic purchases and $50 for paper purchases.

Maximum Purchase Amount: $10,000 total each calendar year per Social Security Number for electronic purchases and $5,000 total each calendar year per Social Security Number for paper purchases.

Available Bonds: Any amount, to the penny, from $25 to $10,000 for electronic purchases. Paper purchases are available in $50, $100, $200, $500 and $1,000 bonds.

You can get more information on I Bonds at Treasury Direct’s web page at the link below.

TREASURY DIRECT I BOND PAGE

David Enna and TIPS Watch

And, you can get a really good overview of I Bonds in the post “I Bond Manifesto: Why inflation-linked savings bonds can work as part of your emergency fund” on the site TIPS Watch.

TIPS Watch – and its owner, David Enna – also provide a number of really informative articles on investing in inflation-protected vehicles. Start at the linked post above and then spend some time checking out associated posts to get a good feel for I Bonds, the current economic/investing climate and other related topics.

With the release of the next six month I Bond rate, David makes a case for purchasing I Bonds prior to the May 1 start of 9.62% to lock in an averaged rate of 8.4% for the next year (average of the current 7.14% and the 9.62% rate).

He says, “While waiting for the May 1 reset might look tempting to launch directly into the 9.62% rate, I still strongly recommend buying I Bonds before April 30, which will lock in a 7.12% rate for a full six months, followed by 9.62% for six months. That’s an annual rate of about 8.4%, and there is no other very safe investment that can match that return.”

It’s definitely something to consider.

You can read his full post on this rate reset at this link.

WRAP UP

As a result of the Federal Reserve Bank holding interest rates low for over a decade now, investors have been all but forced to put money into stocks, rather than bonds which are a much safer investment vehicle, to earn a reasonable rate of return.

So far, that’s turned out well…very well for many investors.

But, hanging out there is the specter of downside risk that’s typically associated with stock investing. Especially now that the Federal Reserve is beginning the normalization of its bond purchases and actions associated with interest rates (raising them).

These actions could result in markets easing their upward momentum, or even losing value in the short to medium term. Some sectors of the stock market have already seen declines.

Bonds are a hedge against potential stock losses. But the regular 2, 5, 10 and 30-year notes and bonds are still – even with the Feds’ first rate increase under the belt and anticipation of many more to come – offering minimal returns.

In comes the I Bond, an inflation-adjusted investment that’s currently offering a very enticing return thanks to the increased inflation rates we’re continuing to see.

I bonds could be a good option for investing money over the coming year or so – maybe longer – as the economy transitions through what could be a tumultuous period of time thanks to Covid, government stimulus, supply chain issues and Federal Reserve actions.

What do you think? Are I Bonds an option for your money?