Disclaimer: This article was written in May 2022. The current I Bond interest rate for November 2022-April 2023 is 6.89% with 0.40% of that interest rate being fixed. If you purchase an I Bond between Nov2022-April2023, your I Bond will have the 0.40% fixed interest for the life of the bond.
A savings vehicle offered by the U.S. government that pays a fixed interest rate plus an inflation adjusted interest rate which is recalculated every six months. Since we have seen the highest inflation rates in decades, I Bond interest rates have also jumped to recent highs. From November 1 to April 30, I Bonds paid 7.12%. During this time, inflation went from 6.8% to 8.5%. As a result, from May 1 to October 31, 2022, I Bonds will pay 9.62%.
As of 5/3/22, the Stock Market (S&P 500) is down over 12%, large banks pay less than 0.05% interest rate in savings accounts and even high yield savings accounts are paying only 0.50% interest so 9.62% is pure gold.
Timeline: You have to keep your money in the I Bond for a minimum of 1 year. If you pull your money out before 5 years, you lose 3 months of earned interest (not a huge deal because you still made more than other savings methods).
Minimum & Max Purchase: $25 is the minimum and the max amount is $10,000 per social security number per year. If you have a spouse, you can open two accounts (one per social security number) and contribute a total of $20,000 per calendar year. You can also contribute an additional $5,000 from your tax refund if that applies to you. I have never done this as we owed money this year so I’m not sure how this works.
Interest: Interest is earned on the bond every month. The interest is compounded twice a year and paid out by being added to your principal every six months. For the next six months, you will earn interest on this new balance. See my example below. You do not get to cash out your interest until you cash out your bond. Interest is paid out 6 months from your purchase date.
First, remember that I am not a financial advisor just an educator. So you need to do your own research and make a decision that is right for you. With that being said I Bonds could be really great use for part of your emergency fund. You do not want to put money in this account that you could need within the next year as it cannot be withdrawn for a year. Remember that inflation will not stay high forever and therefore I Bond rates will eventually drop as well. For the next six months (and probably more), this is an amazing way to keep up with inflation and have your money make you more money.
Even though this interest rate will drop eventually, it doesn’t go negative (meaning you can´t lose your initial investment) and will probably always pay more than the interest rate paid by big banks.
An I Bond account can only be opened through the Treasury Department. Please use the link below if opening an account. For most people, the process is relatively simple.
For some reason, some people have to complete an extra step when opening their account. After opening your account, you will get an email. If you get this email message:
Then you have to download the form given and take to your bank to be completed. I had to go through this process with one of my students to get his account opened. He banks at Wells Fargo and it was not an easy process. The Treasury Department was asking for a medallion signature and Wells Fargo and other banks stopped doing these signatures. Therefore I contacted the Treasury Department for more direction. I got the following response which we took back to Wells Fargo:
We finally got our form completed, accompanied by a notarized page and my student got their account opened. If this additional step happens to you, then please print the above communication to take with you to the bank. I also recommend calling for a notary appointment.
Disclaimer: I am an educator, not your personal financial advisor. Please make sure to do your own research before moving forward with any actions discussed in this blog post.
Know that all investments involve some form of risk and there is no guarantee that you will be successful in making, saving, or investing money; nor is there any guarantee that you won’t experience any loss when investing. Always remember to make smart decisions and do your own research!
