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Buy I Bonds (Savings Bonds) in August 2022 at 9.62% | Keil Financial Partners

· The current semi-annual rate is 4.81%. Your August 2022 I bonds purchase will turn your $100 into $104.81 just 6 months later. This is a 9.62% 
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Are you searching for greater interest rates to grow your money?

If yes, then US Series I Savings Bonds might be exactly what you’re looking for!

The August 2022 I bond inflation rate is 9.62% (US Treasury) which is 4.81% earned over 6 months. Your $100 investment becomes $104.81 in just 6 months!

We are keeping a close eye on the latest CPI-U numbers, which you will see below determine the inflation rates for I bonds. CPI numbers were released on August 10, 2022. Notice the wide range of possibilities for the next rate, based on only 4 months worth of data, so its hard to find a trend.

Current CPI-U numbers with implied/extrapolated Fall 2022 I Bond 6-month rate* This extrapolated rate is highly sensitive to each month’s inflation change. This eye-popping number is an encouragement to continue to watch the data and is not a prediction of the November 2022 rate.

The August – October 2022 initial rate of 9.62% is the highest rate every offered on I bonds.

When we compare the 6-month composite rates against 12-month treasuries at the time we see that the 6-month I bond rate is an average of 0.31% lower.

At an initial rate of 9.62%, buying an I bond in August gets roughly 6.75% more compared to the 2.98% 12-month treasury rate (8/1/2022).

What to consider when buying I bonds in 2022

You are required to hold I bonds for 12 months, yet you only know the rate you’ll get over the next 6 months.

There are 2 rates you need to keep in mind:

  • The current rate for August – October purchases and 6-month renewals, will be 9.62%
  • The rate after that, from November 2022 – April 2023 purchases and renewals, will be determined later.

We’ll discuss how these 2 rates interact later on in the section “What’s the worst case scenario?”

What you need to know about I bonds

Read more: 11 Best Investments In 2022 – Bankrate.com

An I bond is a U.S. Government Savings bond that carries a fixed interest rate, plus an additional inflation adjuster, so that you get an inflation-adjusted real rate of return. In a world of inflation worries and few inflation-adjusted investments, the I bond is a great place to look for savers.

Now, what are the details with an I bond?

  • You have to hold them for 12 months minimum. You can’t cash out before then.
  • If you cash out between the end of year one and the end of year five, you lose your prior three months interest as a penalty.
  • You can only buy $10,000 per person, per year, and you have to do it at TreasuryDirect.gov
  • I bonds are a great place for part of your emergency fund money

Bonus: Listen to our podcast with savings bond expert David Enna from TipsWatch.com on I bonds: US Series I Savings Bonds Simplified

Why I bonds are so interesting right now

Many investors we talk to hadn’t heard of US Series I Savings Bonds (I Bonds) but have recently become aware of them because of the eye-popping yields they started offering in 2021.

Coverage began in earnest in May 2021 when the 6-month ‘inflation rate’ of 1.77% was announced (which is 3.54% annualized!).

WSJ: I Bonds – the safe high return trade hiding in plain sight & Investors Flock to ‘I Savings Bonds’ for Protection Against Inflation

NY Times: With inflation rising, consider the humdrum US Savings Bond

Then, in November 2021 I bond rates doubled to 7.12%!

Now, for purchases and renewals from August 2022 – October 2022 the rate is 9.62%!

How I bonds work

When the US Government announces the 6-month inflation rate, you’ll be earning double that amount for half the year. Most interest rates are quoted in annual terms, but the I bonds are quoted in semi-annual 6-month terms. To calculate the annualized rate and to compare it to other rates just double the 6-month inflation rate.

Read more: Not Sure How to Make Money on the Side? Here Are 44 Ideas

The current semi-annual rate is 4.81%. Your August 2022 I bonds purchase will turn your $100 into $104.81 just 6 months later. This is a 9.62% annualized rate.

After six months you’ll get the new six-month rate, and your money will grow by that new rate. If you already bought I bonds then sometime between May 2022 – October 2022, whenever your semiannual anniversary hits, your renewal rate becomes 9.62%.

You are required to hold I bonds for 12 months, and you only know what the next 6 months will bring for interest, but what’s the worst that could happen?

What’s the worst-case scenario?

The worst case scenarios is you earn 9.62% interest for the 6 months after you buy your I bond, followed by 0% after that. Your $100 would turn into $104.81 6 months later, and still be worth $014.81 at the end of month 12.

If the rate 12 months from now is not to your liking, then you could cash out your I bond in 12 months, lose the 3 months prior interest (which would be 0%), and still have $104.81.

That’s a 4.81% rate over the next 12 months!

You’re very likely to earn more than 4.81% over the next 12 months, though.

There have been 49 announced inflation rate adjustments since I bonds started in September 1998, and only 2 have been negative!

Yet even when the inflation rate was negative, I bond interest never goes below 0.0%!

Imagine if there was a 12-month CD paying 4.81% right now! That’s how you could view your August I bonds purchase. And, it’s very likely you would earn more than that over the next year.

What are the rates on comparable investments?

Read more: An Introduction to 529 Plans – SEC.gov

12-month CD for a top rate of 2.50%, and average of 0.31%

Money market for a top rate of 1.85%, and average of 0.12%

Savings account for a top rate of 2.15%, and average of 0.10%

12-month Treasury of 2.98%

(based on Bankrate.com from August 1, 2022) and Federal Reserve Data from August 1, 2022)

I bonds seem to have an advantage and are worth considering.

Get Strategic with Your I Bonds purchase

David Enna, author of Tipswatch.com suggests being even more strategic, “You can buy an I Bond near the last day of the month and get credit for a full month’s interest, so you can effectively cut the one-year holding period to 11 months and a day, but realistically, you may want to extend the holding period to 14-15 months. If you lose the prior three months of interest by cashing in early, and are unhappy with the new 6-month rate, you’d want to hold on for the full higher interest period in months six to twelve and wait for another full three months of lower interest before cashing in after month fifteen.”

Take Action

When you get your bank statement and need a microscope to find the pennies of interest you are getting, think through how much you can commit to a 12-month interest rate that pays over 4.8%. Zvi Bodie likes to call I bonds “America’s Best Kept Investing Secret.” Let’s fight the low interest rates that we are getting right now, buy some I Bonds, and tell everyone else we know about this incredible opportunity. To buy your I Bonds, go to TreasuryDirect.gov.

Bonus: Listen to the podcast with David Enna from TipsWatch.com for more in depth analysis on I bonds: US Series I Savings Bonds Simplified

Resources:

  • 9 Steps on how buy I Bonds
  • Podcast: US Series I Savings Bonds Simplified featuring David Enna from TipsWatch.com
  • Treasury Direct: Series I Savings Bonds
  • 3 Things You Should Know Before Choosing A Financial Advisor
  • 6 Questions Retirees Aren’t Asking But Should Be
  • Free Retirement Video Course: Your 5 Step Retirement Income Plan
  • Subscribe to Retirement Revealed on Google Podcasts
  • Subscribe to Retirement Revealed on Apple Podcasts

Connect With Jeremy Keil:

  • [email protected]
  • (262) 333-8353
  • LinkedIn: Jeremy Keil
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  • LinkedIn: Keil Financial Partners

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