Fight Inflation With I-Bonds

Inflation has always been a consideration but is not regarded as a severe concern for many investors. That is no longer the case. We last faced significant inflation in the early-to-mid 2000s, with the most notable bout of inflation occurring in the 1970s. Today, many investors may feel ill-prepared and do not know exactly how to deal with this risk. I-Bonds may be part of a strategy to combat rising inflation.

What Are I-Bonds

• I-Bonds are issued by the US government directly to investors.
• This bond carries favorable interest rates over CDs and bonds due to the inflation component of the interest rate calculated by the change in CPIU over six months.
• You’re required to hold I-Bonds for at least one year. If you cash out within five years, you forfeit interest earned in the previous three months, whereas the early withdrawal penalty on typical CDs is often six to 12 months of interest.

Advantages Of Having This Bond

• Current I-Bond annualized interest rates are 7.12% in the first six months. After that, the rate will continue to match inflation in the previous six months. This is better than CDs or holding cash in the bank.
• The flexibility to cash out after one year with a low penalty or hold on for as long as 30 years makes I-Bonds good for short-term and long-term savings.
• The value of I-Bonds never goes down. The interest rate changes in six-month cycles and is guaranteed to at least match (CPIU) inflation. Some older bonds earn a positive rate above inflation.
• You pay tax on the interest earned from I-Bonds only when you cash out, whereas you must pay taxes on interest from CDs and Bond Funds every year, even if you reinvest the interest. Interest from I-Bonds is exempt from state and local income taxes.

How To Purchase I-Bonds

• Government Website: TreasuryDirect.gov
• The purchase limit is $10,000 per person per year. A married couple may purchase a total of $20,000 in November or December of 2021 and an additional $20,000 in January 2022.
• You may check your balance, make additional purchases, and redeem I-Bonds at any time on Treasury Direct. 

Leading Edge Financial Planning www.leadingedgefinancialplanning.com