Inflation Hedge: Series i Savings Bonds at 9.62% in 2022

Series i savings bonds are at 9.62% – Where else can you get that type of yield?

But, there are some things to know about Series I Savings Bonds. In this video we talk about important things to think about, like:

  • Liquidity
  • Purchase limits
  • Reason for holding

Show Notes:

Full transcript:


Anthony Saffer & Alex Okugawa

Alex Okugawa 0:00
9.62% Where else can you get that type of yield? But there are some things to know today we’re discussing eye bonds. Stay tuned.

Hi there, it’s Alex and Anthony from One Degree Advisors. Today we are discussing series I savings bonds. They’re set to pay 9.62%. So Anthony, why are we talking about this?

Anthony Saffer 0:23
Yeah, firstly, comparison, we all know that savings yields are very low, even high yield savings accounts such as Ally Bank, still paying point 5% around that, as interest rates have increased 10 year Treasury notes, depending on the day you look about 2.8%. So if we’re talking about savings bonds, they are paying currently 7.12% and are set to increase to 9.62%. That’s a huge difference.

Alex Okugawa 0:48
So let’s do a brief breakdown and breakdown on how these interest rates are calculated. We’re left with two components, right? So you have the fixed-rate, which is currently zero, and then the inflation rate, which is variable. So if you buy AI bonds, right now, in the month of April, when we’re recording, you could get 7.12% for six months. And then in the next six months, you can get 9.62%. So over the course of the year, that’s a total of 8.37%. And that’s in that first year, of course, excluding any penalties.

Anthony Saffer 1:21
That’s right. So if you buy in the current window before the reset on May one, that’s 7.12%. And then as you said, it’s scheduled to go up to 9.62%. So that’s a good average, especially over the full year 8.37%.

Alex Okugawa 1:35
Now, if you wait until Mays rate changes, right, so if you wait until May to buy really what you’re looking at is 9.62% for six months, and then after that six months, that’s when it’s undetermined, right, you don’t exactly know what your rate will look like after that six months. So Kitsis put together a nice chart just showing, you know, basically the issue of the month that you buy the bond, and then when those new rates take effect. So again, helpful just to see that in a chart format.

Anthony Saffer 2:04
So people are buying in the next window after May one and a lot of years, we’ll be watching this video after that point, 9.62%. And then six months down the road, they get the new rate, many people are still predicting inflation to be high. So it’s probably still going to be good.

Alex Okugawa 2:17
Series I bonds rate deal with really good rates, especially with inflation, where it’s at right now. But of course, liquidity is always something that you have to think about when you’re buying I Bonds.

Anthony Saffer 2:26
Yeah, these timeframes are really important, because in under one year, there is no liquidity. So you have to know that you want to keep that money in the bonds for at least one year because you can’t get it back out. Now, after one year, you get a little bit of flexibility in between one year and five years, you’re you still get the interest, but you’re penalized for the last three months of interest, which even if you’re giving that up with such high rates, it’s not that better than that of a deal, you know, some interest paid at the bank. Yeah, exactly. And then after five years, up until the full 30-year maturity, there’s no penalty, it’s redeemable at the current value. And so if you’re keeping it at that point if rates stay high, and you keep the money invested there, then that’s that can be a good deal.

Alex Okugawa 3:05
Now, a lot of people, when they talk about AI bonds, they’ll talk about the limits, right? So the way I bonds work is that you’re limited to $10,000 per person slash entity in the calendar year. So what I like to think about is if you’re, let’s say have a family of four, right? You, your wife, and two kids in the house, you could theoretically buy $40,000 worth of Series I savings bonds. Y

Anthony Saffer 3:29
Yeah, so it’s based on who’s being like the gift recipient. So if you are buying it for your kids, you know, as long as it’s just one per person, and you can buy these through Treasury, we’ll post a link in the comments there, that’s where you can buy it. You can also buy the savings I bonds through tax refunds to the federal tax refund up to $5,000 per tax return. And that’s issued in the form of a paper bond.

Alex Okugawa 3:54
The paper bond is different from the electronic bond because the electronic bond, I believe can be partially redeemed, whereas the paper bond has to be fully redeemed, so there is less flexibility with the paper there.

Anthony Saffer 4:05
Yeah, but it’s one way to get a little bit more if you liked that yield and want to put cash to work.

Alex Okugawa 4:10
So how should people be thinking about these I mean, to me, this is almost like a CD, right? That certificate deposit a lot of people are very familiar with, if you don’t need the cash for a year, this can be a really good tool, it can, you know, allow for value preservation. And honestly, the rate is just hard to be it’s really attractive in this current environment.

Anthony Saffer 4:30
That’s where you want because of that one-year minimum. You can’t think about it as just an emergency reserve because you can’t get to it right away. But if you know you have a savings goal that is more than a year away, maybe you’re saving for a wedding or you’re saving for college tuition or something else where you’re not going to need that money for at least a year. It can be a great way to put your money to work.

Alex Okugawa 4:50
Absolutely. And now let us know what you think. Are you interested in series I savings bonds and have you bought them in the past? Let us know in the comments below. And if you enjoyed today’s video Please like and subscribe for more thanks for watching.

Transcribed by

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