Safe, but High Yield Investment for Inflationary Times

by Vaibhav Puranik
October 17, 2022
Investments, Tax Benefits
(0)
02 Mins

A lot of friends of mine are currently in a wait and watch mode. They want to park their money temporarily but safely and at the best possible interest rate they can get.

Guess what, one such avenue actually exists! And that’s I-Bonds or Series I Savings Bonds issued by none other than the US Government itself. They are the safest instrument you can get in the entire world right now assuming that the US government will always pay back their debts. If they don’t, then we have a bigger problem!

The Series I Bonds

The I in Series I Bonds stands for Inflation and hence as inflation increases, interest rates on these bonds increase as well. Currently if you buy an I-Bond before October 31st, 2022, the annualized interest rate you will get for the next 6 months is 9.62%! Yes, that’s right! If you think I am lying then check it out yourself – https://www.treasurydirect.gov/savings-bonds/i-bonds/

If you read this article after October 31st, 2022 then the page will show you the current annualized interest rates for the next 6 months. The interest rates change every 6 months, but the interest rate for the next 6 months (November 2022 – April 2023) is already calculated and is slated to be 6.48%! That’s still way better than what you can get in a high yield savings account!

And there is one more advantage to I-bonds. The interest earned is exempt from state and local taxes! If you live in high taxed states such as California and New York, this is definitely an advantage for you! The interest earned is not exempt from the federal income tax.

What’s the Catch?

Any individual can only buy I-bonds worth $10,000 per year. But, if you have married and you have 2 kids then you can buy 40,000 dollars worth of bonds a year. In addition to that, if you have a living trust, then you can buy additional $10,000 worth of bonds for the trust itself! That makes it $50,000 total if you have two kids and a living trust! You need to have a separate treasurydirect.gov account for each of these individuals/entities! So you will have to open 5 accounts. I opened an account in 10 mins and it’s pretty straightforward and easy.

The maturity date of the bond is 30 years! That doesn’t mean you can’t get your money out sooner! You can’t cash out the bond for the first year. After that, you can cash it out anytime by forgoing interest for the last three months. Not bad, right? If the inflation remains high, then keep the money there, otherwise get the money out. Even after paying the 3 month penalty you will make a much better return than a high yield savings account.

This article is not meant to be an investment advice. Whether government bonds is a good investment or not should solely be your decision. You should do your own research. Series I Bonds are everywhere on the internet right now because of their high return. Simply Google it or watch the following video: