… but only at the right time.
What if we told you there’s an investment where you get a guaranteed return on your money with zero risk? If you said “no way, that’s fake”, great job on your skepticism. But it turns out this is a rare exception and actually a real thing. We present to you: the I-bond!
You’ve probably heard of savings bonds. They’re long-term bonds that you buy from the U.S. government and they pay interest every now and then. I-bonds are another form of savings bond, one that the government created to offer a form of protection from inflation. An I-bond does this by paying you interest that matches the rate of inflation. In normal times, when the economy is doing boring normal things, this rate is pretty low and uninteresting to investors (inflation usually runs under 3%). But sometimes inflation gets bonkers, like the aftermath of the 2020 global pandemic that led to inflation above 9% annually – which took the interest rate on I-bonds right up to 9% too!
So why wouldn’t you dump your entire savings into I-bonds when inflation is high?! Because the no-fun government limits you to only investing $10,000 in I-bonds per year. But even with this limit, the rate and risk-free nature of the bonds makes it a pretty snazzy investment when inflation is skyrocketing.
If I-bonds sound like your thing, go check out current rates at Treasury Direct. Keep in mind that I-bond rates are usually pretty low (below 3%) because inflation is usually pretty low. Before we go, here’s a few other things to know about I-bonds before you invest:
- You can invest up to $10,000 per calendar year per social security number. That means you can buy yourself one, one for your spouse or partner, even I-bonds for your kids if you’ve got a family.
- The interest rate on I-bonds readjusts every 6 months based on the current inflation rate. Keep in mind that the rate you bought them at will likely change twice a year before it matures in 30 years or before you go to cash it out.
- Your money is locked into the I-bond for 12 months. After that, you can cash out the bond for a small penalty of 3 months of interest. You can avoid that penalty if you hang on to the bond for 5 years, but in most cases you probably won’t want to do that because of what we said above about inflation usually not being very high. Either way, 3 months’ interest is a small price to pay if you’re earning a high interest rate!
- You’ll pay federal taxes on the interest you earn on an I-bond, but not state or local taxes.
For lots more on how to crush the personal finance game and find early retirement, make Firreo your financial advisor. We’ll help you out of your job and on your way to financial freedom!