Both. (You can buy a paper I bond only when filing a federal income tax return.)
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expired Posted by MikeyMarginal • Jul 15, 2021
Jul 15, 2021 12:37 PM
expired Posted by MikeyMarginal • Jul 15, 2021
Jul 15, 2021 12:37 PM
US I Series Savings Bond from Treasurydirect up to $10K currently 3.54% soon 7.1%
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What do you financial experts think?
This looks like it could be a wise diversification for many young people currently invested in equities, to move a little money and lock in some profits while protecting their financial future from inflation and other risks.
https://www.treasurydir
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The upside of investing $10k in these bonds is that your $10k will definitely increase with inflation -- there's no way you'll lose purchasing power. The downside is that there's no way you'll gain purchasing power, either. You're basically locking in a real interest rate of zero.
Mind you, that's if when you sell the bond, you use the money to pay for college and so avoid paying income tax on the interest. If you don't do that, you'll pay federal income tax on the interest.
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You cannot redeem them in the first 12 months
If you redeem them after year 1, but before year 5, there is a penalty equal to the last 3 months of interest.
Although the current rate is 3.54%, I-bonds have a rate that changes every 6 months. The current Fixed Rate (which is set for the life of the bond) is 0%. For the past decade, the fixed rate has been low-to-non-existent, but in the past it has been as high as 3%. If you hold one of those bonds, your current composite rate would be earning close to 7% interest! If possible, I prefer to "get in" to I-bonds when the fixed rate is more palatable.
Also note, you get the interest for the whole month even if you buy on the last day of the month! If you wait until the end of October, you can have an idea of if you would rather have the upcoming interest combination set or if you want the current set (although I don't think they reveal the fixed rate until the window opens).
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We park some of our emergency fund money in these, so it's much better than earning 0.4% at a savings acct. A few things to keep in mind:
- the interest rate changes every 6 months (tied to inflation)
- You need to keep it at least 1 year, and after that, there is a 3 month interest penalty if you cash out in less than 5 yrs. However, even with the penalty, it still has a much higher interest rate than a savings acct.
- It's a Government website so the interface is like 20 years old.
Overall though, it's a very solid offering for a part of your cash reserves.
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The upside of investing $10k in these bonds is that your $10k will definitely increase with inflation -- there's no way you'll lose purchasing power. The downside is that there's no way you'll gain purchasing power, either. You're basically locking in a real interest rate of zero.
Mind you, that's if when you sell the bond, you use the money to pay for college and so avoid paying income tax on the interest. If you don't do that, you'll pay federal income tax on the interest.
Mind you, none of this is a strong argument against these bonds. If you're looking to invest in Treasuries, it's hard to do better than these at the moment.
1-Year 6.56%
3-Year 6.54%
5-Year 4.26%
10-Year 3.18%
Worst year was -8.92% in 2013
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