As reported by Bloomberg:
Individuals can now get a whopping 7.12% direct from the U.S. government.That’s the new rate for Series I savings bonds bought from the U.S. Department of Treasury from now through April 2022 -- the second highest ever offered.The interest rate on the Series I bond is set twice a year based on recent changes to the the consumer price index for all urban consumers, so November’s pricing is based on the change from March to September.
Note the standard caveats:
The interest rate is guaranteed for the first six months and after that will rise or fall depending on inflation. You have to hold onto your investment for at least a year, and if you exit before five years, you’ll lose three months of interest.The maximum investment is $15,000 per calendar year, they aren’t tradeable, and purchases are limited to U.S. citizens, residents and employees.
The interest received is not taxable by state and local governments.
Savings bonds are not obtainable via brokerage firms or banks, AFAIK; they can be purchased from the federal government without an intermediary at TreasuryDirect.
Addendum 2022:
A Morningstar article ("Run, don't walk, for I Bonds") updates the information (and enthusiastically recommends this investment.
I didn't even know the government still issued Savings Bonds to people. When I was a kid there was constant flow of advertisements urging us to purchase them. The pitch was that you did your country a good turn in return for a guaranteed (though by modern standards small) interest rate. This says you're guaranteed 7.1 percent, but only for the first six months of the five years during which you must hold the bond to get full benefit. After six months the rate can (and surely will) go down and may (but is hardly likely to) increase. You have no way of knowing in advance what you're getting in to. Am I completely misunderstanding this? It doesn't sound that different from most retirement accounts, in which your nest egg shrinks or grows depending upon the stock market.
ReplyDeleteYes, you did completely misunderstand this. You didn't go to the link, where it is discussed in detail (and my summary may have been too brief).
DeleteThese are not five-year instruments, and you are NOT required to hold them for five years. You can cash them in after one year. If you cash them in before five years, you lose 3 months interest (i.e. cash them in at three years, receiving 2years 9 months interest.
And your prediction that interest rates will "surely" go down and are "hardly likely" to increase is at odds with most analysts now. The reason equity prices have stopped rising is because of fear that the Fed will raise rates, making Treasuries more competitive with equities.
An important part of understanding this investment is that inflation just clocked in at 6.8%. By owning this security, you are not earning 7%. You are simply committing to earning something close to 0% after inflation as the coupon adjusts.
ReplyDeletePrecisely. That CPI figure is the reason the savings bonds were pegged to 7.1%.
DeleteAnd it's worth noting that while these savings bonds are not vehicles toward wealth, they are a log power better than the 0.5 - 1.0% interest/dividend currently offered by banks, credit unions, and money market funds - which effectively are offering negative real returns.
i like the social security COLA = 5.9% more next year.
ReplyDeleteI-)
Thanks for the heads up. I'll go to the site.
ReplyDeleteIt seems that for the first half of my life (I'm 80), I was always told to save and if possible to save enough that your money would earn interest and "work for you."
There was (and is) the admonishment that no one is saving enough for retirement when the reality is that savings does NOT earn crap.
It seems that big money decided that little money had no rights or hope and has gone after little money's principle with both hands.
"Live on your interest" is a joke and not a funny one.
Sorry, this is one of my big bugaboos.
I quite agree with you that the "system" is rigged in favor of the bankers and investment professionals.
DeleteAlso, during my entire working life I read/was told that one could "count on spending 3-4% of one's savings per year based on interest and investment returns. Nobody ever predicted that interest rates would be at a fraction of a percent with negative real returns.