Inflation is on the minds of many Americans right now. While home and gas prices are beginning to fall, there are several other areas of our budget (grocery bills!) that are hitting some of us hard. It can be difficult to remain positive after reviewing your budget.
Luckily, there’s a timely bright side to inflation and your wallet. And this is a great time to take advantage of it.
Earn High Interest Rates on Series I Savings Bonds
Before we explain why now is the time to buy I bonds, it’s helpful to understand how Series I Bond interest rates work.
There are two savings rates: a fixed rate of return and a variable rate. The fixed rate remains the same (0.0% as of September 2022). The variable rate is recalculated every six months (4.81% as of September 2022).
While you’re guaranteed to earn 4.81%, the U.S. Department of Treasury calculates the rate for 12 months (4.81% x 2) as an estimation of what you would earn over a year. This means the composite rate for I bonds is 9.62% currently.
Here’s where it gets interesting. The rate may change after six months, and money expert Clark Howard predicts that the rate will decrease to the “high fives or low sixes” in November 2022. The day you buy I bonds, you earn the existing interest rate for six months. Then you earn the new interest rate for six months.
If you buy I bonds before October 28, you could effectively earn an average of 7.8% interest on your money this year.
“For the foreseeable future, this is a great place to stash up to $10,000 in each family member’s name,” Clark says.
Even with the anticipated rate drop, that’s much more than you’d earn in a bank account or certificate of deposit (CD). For example, Ally Bank is on our list of the best high-yield savings accounts. As of Spetember 22, 2022, the Annual Percentage Yield (APY) for an online savings account at Ally is 2%, and the APY on a five-year CD at Ally is 2.75%.
Frequently Asked Questions About Series I Savings Bonds
What does the “I” stand for in the I bond? The “I” stands for inflation. The annual interest rate resets every six months. As inflation goes up, what you earn goes up. As inflation goes down, what you earn goes down. The value of your I bonds can never be less than what you paid.
Is there a limit to how much I can purchase? The maximum purchase is $10,000 per person every year. However, you can also use up to $5,000 from your federal tax refund to purchase I bonds so you could potentially purchase $15,000 in one year.
What are the withdrawal rules? The money must remain in the bond for at least 12 months. If you cash them out before five years, you lose the previous three months of interest. I bonds earn interest for 30 years.
Does Clark Howard own Series I Savings Bonds? Clark says that he has owned these bonds for 24 years. He plans to hold them for all 30 years which is the amount of time it takes for a bond to fully mature.
You can find more answers to frequently asked questions about Series I Bonds here.
If you’re wondering where to stash your cash, money expert Clark Howard says Series I Savings Bonds are a great option right now:
“The interest rate is so interesting,” says Clark. “Even though you’re only getting the inflation rate, it’s better than what you can earn on your savings anywhere else at this time.”
Before you buy I bonds, make sure you can leave the money in the bond for at least one year (ideally at least five years) to avoid penalties.
Questions about Series I Savings Bonds or other money topics? Call Team Clark’s free Consumer Action Center and an experienced volunteer can help: 636-492-5275.