I Bonds - 6 Things To Know
My team and I here at Wagner Wealth Management have fielded quite a few calls this year with client questions about I Bonds. With money market rates still sitting at very low levels, the current annualized yield on new I Bonds of 9.62%/year is eye-popping. So why isn’t every dollar sitting in cash in the US flowing into I Bonds? Mostly due to these 6 considerations…
- While the current interest rates are very high, they are only guaranteed for 6 months. Then the rate resets. And it can easily reset much lower. Details on this below.
- The minimum holding period for an I Bond is 1 year.
- If you redeem your bond before 5 years, the US Treasury will claw back 3 months’ worth of interest.
- There is no easy tracking system for almost all I Bonds. No paper 1099s, no statements. Just an online account. So if you pass away, it can be very difficult for your heirs to actually know you even own an I Bond. You will have to leave explicit instructions with your will, and include the username and password to your online account. Is this really a problem? Yes. The US Treasury has more than $29 billion in matured unclaimed bonds. Orphaned bonds which the owners haven’t bothered to cash in (you can see details here). The Treasury is not exactly incentivized to track down you or your heirs and give back your money.
- I Bonds can only be purchased online (unless buying one with your tax return), and only by the investor themselves.
- There is a $10,000/year limit (the limit is $5,000/year if buying with your tax return).
As for the interest rates: yes, right now the 9.62%/year quoted rate is super appealing. But since that rate is only good for 6 months, it is actually a rate of 4.81% for 6 months. And historically I Bond rates have gravitated towards the 1.50%/year - 2.50%/year area. Have they been even lower than that? Consider May 2015 when the reset took the rate down to 0.00%/year.
Here are the I Bond annualized rates for each 6 month period over the last 9 years:
|
May 2022 |
9.62% |
|
Nov 2021 |
7.12% |
|
May 2021 |
3.54% |
|
Nov 2020 |
1.68% |
|
May 2020 |
1.06% |
|
Nov 2019 |
2.22% |
|
May 2019 |
1.90% |
|
Nov 2018 |
2.83% |
|
May 2018 |
2.52% |
|
Nov 2017 |
2.58% |
|
May 2017 |
1.96% |
|
Nov 2016 |
2.76% |
|
May 2016 |
0.26% |
|
Nov 2015 |
1.64% |
|
May 2015 |
0.00% |
|
Nov 2014 |
1.48% |
|
May 2014 |
1.94% |
|
Nov 2013 |
1.38% |
|
May 2013 |
1.18% |
If you would like to explore further or even buy I Bonds yourself, you can do so at The U.S. Treasury website here.
Source: The U.S. Treasury Department
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