I Buy I Bonds, We Buy I Bonds
Six months ago I wrote about buying US savings bonds. It was the first time I'd ever bought some. This week Hawk bought some, too.
Yes, savings bonds, the tool my grandparents used for saving money decades ago, are still around. The classic types of bond introduced in the 1930s and 40s were joined by Series I Savings Bonds in 1998. I-bonds are different in that instead of doubling over a fixed period of years they earn a variable interest rate based on the government's consumer price index (CPI). With inflation driving up the CPI and recession fears making equities investment really risky right now, I-bonds are having a moment in the sun.
The rate for I-bonds is set every 6 months, effective May 1 and November 1. While the rate isn't officially announced until a few days before the target, it's fairly predictable from government CPI data published a few weeks ahead. Based on those data we expect the rate to go down significantly, from 9.62% currently to just 6.48%. Thus Hawk bought her bonds this month, locking in the current 9.62% rate for 6 months. After that it will drop to 6.48% (or whatever's announced in a few days' time) for the next 6 months, and so on.
Laddering
We're alternating who buys the bonds and spacing our purchases 6 months apart in a technique called laddering. It's common in buying certificates of deposit (CDs). With CDs you lock up your cash, say for 1 year at a time. The way to make sure you've always got spendable cash coming available soon in case you need it is to buy smaller 1-year CDs every 3 months instead of one big one every year.
I-bonds are a bit more complex than CDs. First, there's only one place to buy them, the US Treasury, and their website is difficult to use. (It was designed 20+ years ago and has not been updated.) CDs are a snap to buy online from numerous banks. Second, your money in an I-bond is locked up for 1 year (with narrow exceptions), and if you sell before 5 years you pay a small penalty in forfeited interest.
So why by I-bonds instead of CDs? The rate on an I-bond bought today is 9.62% for 6 months, dropping to 6.48% in months 7-12. Today's rate on a 1-year CD at my favorite online bank is 3.25%.
Yes, savings bonds, the tool my grandparents used for saving money decades ago, are still around. The classic types of bond introduced in the 1930s and 40s were joined by Series I Savings Bonds in 1998. I-bonds are different in that instead of doubling over a fixed period of years they earn a variable interest rate based on the government's consumer price index (CPI). With inflation driving up the CPI and recession fears making equities investment really risky right now, I-bonds are having a moment in the sun.
The rate for I-bonds is set every 6 months, effective May 1 and November 1. While the rate isn't officially announced until a few days before the target, it's fairly predictable from government CPI data published a few weeks ahead. Based on those data we expect the rate to go down significantly, from 9.62% currently to just 6.48%. Thus Hawk bought her bonds this month, locking in the current 9.62% rate for 6 months. After that it will drop to 6.48% (or whatever's announced in a few days' time) for the next 6 months, and so on.
Laddering
We're alternating who buys the bonds and spacing our purchases 6 months apart in a technique called laddering. It's common in buying certificates of deposit (CDs). With CDs you lock up your cash, say for 1 year at a time. The way to make sure you've always got spendable cash coming available soon in case you need it is to buy smaller 1-year CDs every 3 months instead of one big one every year.
I-bonds are a bit more complex than CDs. First, there's only one place to buy them, the US Treasury, and their website is difficult to use. (It was designed 20+ years ago and has not been updated.) CDs are a snap to buy online from numerous banks. Second, your money in an I-bond is locked up for 1 year (with narrow exceptions), and if you sell before 5 years you pay a small penalty in forfeited interest.
So why by I-bonds instead of CDs? The rate on an I-bond bought today is 9.62% for 6 months, dropping to 6.48% in months 7-12. Today's rate on a 1-year CD at my favorite online bank is 3.25%.