With inflation at recent historic levels, many folks are asking whether they should buy Series I Savings Bonds issued by the U.S. Treasury. Well, the answer, of course, depends. Each situation is different, but the current market conditions make an interesting case for I Series bonds.
Until recently, I Bonds where paying rates in the low single digits. But with the rise in inflation, the situation has changed. Series I Bonds have a floating rate indexed to inflation. The current savings rate on the Series I Bond is at 9.62 percent and resets twice a year based on inflation
U.S. citizens can buy up to $10,000 worth of Series I Bonds each year. These bonds cannot be purchased or held through a broker or an advisor but rather directly through the U.S. Treasury. There is also an early redemption penalty if sold within 5 years.
More information on I Series Savings Bonds at this LINK.
The current I Bonds interest rate is certainly appealing, but the limit of $10,000 means that most clients will want more money in interest-bearing investments. The good news is that there are some options. For example:
- For Minnesota residents, Minnesota municipal bond funds are paying around 4% state and federal tax-free. For Minnesota residents showing up to $171,000 of taxable per couple, the taxable equivalent yield is about 6%.
- Floating Rate funds hold bonds that adjust with inflation so they can better keep pace with rising inflation. These funds pay around 3.6% and have delivered a total return over the last 10 years around 4%.
- Clients who need significant amounts of interest-bearing investments ($250,000 or more) can own a basket of individual bonds. This creates some great options:
- Owning individual bonds to maturity means that the face value of the bond is returned to you when the term expires. So, your principal investment is protected.
- A basket of Minnesota bonds can pay around the same 4% as the bond fund mentioned above, so the effective yield for Minnesota residents showing up to $171,000 of taxable income per couple, the taxable equivalent yield is about 6%.
The good news is that you have options. But every situation is different, so you do have to carefully consider your entire financial situation. If you would like to talk about your situation, I would be honored to visit with you. Follow this LINK to find a time that works for you.
If you would like to find a few experienced, well-trained, fiduciary financial planners to consider, a great idea is to start looking for CERTIFIED FINANCIAL PLANNER™ professionals in your area.
To find a CFP® professional near you, start your search here.
As you visit with financial planners, I suggest a couple things to check:
- Is the advisor always the client’s advocate – a fiduciary advisor?
- Is the advisor paid by clients, not financial product manufacturer or distribution network? That would be a fee-only advisor.
These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.
A fiduciary, fee-first, CFP® professional can help you make great retirement income choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.
Yes, I am a CFP® professional. I’m always a fiduciary and I work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.
If this article has you thinking about your own circumstances, contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.