Wedding Finance

Last chance to earn 9.6% with “nearly risk-free” I bonds

If you’re looking for an investment to keep up with inflation, everyone from your financial planner to your dad to Suze Orman has probably recommended looking into Series I savings bonds, also known as “I bonds.”

It’s easy to see why. These inflation-adjusted bonds backed by the US government pay a fixed rate for the life of the bond, plus an inflation rate indexed to changes in the consumer price index. Given the high level of inflation, these bonds currently offer a record annual interest rate of 9.62%.

But not for long. I bond rates change twice a year, with the next change scheduled for November, when the rate is expected to drop to 6.48%.

To guarantee yourself six months of interest at the highest rate, you must purchase and receive a confirmation email before midnight on October 28, according to TreasuryDirect, the website where these bonds are exclusively sold.

If you haven’t bought it already, rushing to do so by tomorrow might be worth it, says Naveen Neerukonda, certified financial planner at PVA Financial in Chicago, Illinois. If you already have some basics covered financially, “this is a great opportunity, given the almost risk-free nature of I bonds,” he says.

Here’s what you need to know.

Why I bonds are attractive right now

Typically, when it comes to bonds, investors earn a higher rate of interest in exchange for taking on more risk, either because the bond is sensitive to interest rate fluctuations , or because the issuer is more likely than others to default.

These rules do not apply to I bonds. Because you must buy these bonds directly from the Treasury, they do not trade in the secondary market and therefore do not gain or, more importantly, lose value depending on the market demand.

And because these bonds are guaranteed by the US government, which has always repaid its debts, they are very unlikely to default.

Although the risk of owning I bonds is negligible, the reward is currently substantial. The 9.6% return you can get by Friday dwarfs interest rates you’ll find elsewhere.

A 1-year certificate of deposit, another investment considered basically risk-free, currently yields 1.05%, on average, according to Bankrate. The interest rate on a 5-year US Treasury note is 4.2%. An index that tracks the broader bond market – where you’ll find interest rate and default risk – currently yields 5%.

I caution: “Think very carefully about this”

However, I bonds may not be suitable for all investors. You cannot redeem these bonds for at least one year after purchasing them. Plus, you’ll owe a penalty equal to three months’ interest if you cash in anytime during the first five years of owning the bond.

“If there is a chance that you will need this money in the next 12 to 15 months, then you have to think about it very carefully,” says Neerukonda. If you don’t have a well-funded emergency fund, I bonds may not be a good place to park your money.

You can buy up to $10,000 of these bonds per person per calendar year (although some strategies allow you to buy more), which limits your potential return, says Kevin Brady, CFP and vice president at Wealthspire Advisors in New York. “We’re not talking about a significant amount of additional interest for most people,” he says.

Even if you are able to maximize your contribution at the record interest rate, you are looking at a profit of less than $1,000 after one year.

Nevertheless, financial professionals consider these bonds to be an excellent addition to broadly diversified portfolios focused on short- to medium-term goals. “If you’re saving up for a wedding in 2024, adding I bonds could definitely be a good idea,” says Neerukonda.

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