We’ve seen plenty of strange things over the past two years. One of the strangest might be the excitement over savings bonds this week. That’s right – savings bonds. Most people haven’t thought about buying them in years because the interest rates are so low. That all changed this week. The Series I savings bond grabbed headlines because its interest rate for the next six months is 7.12%. Before you rush to buy one, let me explain some of the fine print.
That headline interest rate will reset in six months to whatever the annualized inflation rate was over the previous six months (measured by CPI-U for the nerds reading this). Historically the interest rate on these bonds has been closer to 1-2%.
To buy one of these bonds, you need to set up an account at Treasury Direct (who wants another account to keep track of?).
Each person is limited to $10,000 of purchases per year. If you were hoping this would replace your entire dismal bond portfolio, you can’t buy enough to make a difference.
You must hold the bond for at least five years, or you forfeit three months’ interest. Think of it like a 5-year CD that you can then sell at any time.
Those pesky details make the offer less attractive, but it’s still a good option for people who are worried about inflation. The bond literally pays the inflation rate (one measure of it anyway), protecting your purchasing power. But if you were looking for a safe 7% return, I doubt you will continue to get that over the next few years.
About the Author: John O’Connor
Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.