On April 12th, the Labor Department reported that headline CPI (Consumer Price Index) in March rose by 8.5% from a year ago, the fastest annual gain since December, 1981. While the inflation bar continues to rise, the stock market has fallen, bond returns have had their third worst 2 year period since 1926, and savings accounts and CDs are still paying low interest rates. So where can you turn for some security and to keep up with inflation? Answer: US Treasury Series I Bonds are currently paying over 7% and that rate will likely creep higher at least for the next six months.
We first wrote about Series I Bonds in December (full article) encouraging investors to get their 2021 purchases in by the end of the year because there is $10k limit per year, per individual/entity. The 7.2% semi-annual rate that was in play then is still available for bonds purchased by the end of April 2022 before Treasury publishes the new semi-annual rate in May. Technically, the current semi-annual rate is 3.65% (3.65% x 2 = 7.2%). Bonds bought after November 1, 2021 and April 30, 2022 will be credited with this 3.65% semi-annual rate over the first 6 months at which point the rates will adjust to the most recently published rate. Rates are published in May and November of each year, so a bond purchased in April 2022 will earn 3.65% over the first six months and then the rate will adjust in October to whatever the rate was published in May. The cycle then repeats itself until you redeem your bond. Important note: You can't redeem your bond in the first 12 months so you will want be sure that you will not need to access the money during this time. Also, if you redeem the bond within 5 years from the issue date you will forfeit three months of interest.
While we still have the April inflation report between us and the publication of the I Bonds rate in May, it is un-likely that inflation will plunge between now and then so we expect that the annual rates for Series I bonds purchased by April 30 should return higher than 7%. Looking further out though the inflation rate and subsequently the reset rates on on I Bonds could start to come back down, especially if the Federal Reserve has their way, Chairman Jerome Powell has been very outspoken on the Fed's motivation to reduce the inflation rate. If you do purchase I Bonds now then be sure to monitor future rates when they reset and determine if it is in your best interest to continue holding them or to redeem them and invest elsewhere.
I Bonds can only be purchased directly through the Treasury Department at TreasuryDirect.gov. Please reach out if you would like to discuss how Series I Treasury Bonds may fit into your overall investment strategy.
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