I Bonds or iBonds: Nov 2006 Update
Get Current Rates and Ask Questions in our Attached Discussion Forum
Nov 3, 2006
I Bond, iBonds, i-Bonds or Series I bonds [11/03/06]
Ask questions, get current rates and read more about "I Bonds" in our I Bond Discussion Forum.
WHAT ARE I BONDS?
I Bonds are also known as "Series I Savings Bonds."
I Bonds are 100% guaranteed by the U.S. Federal Government. Their key feature is inflation protection, hence the "I" in "I Bond." The interest paid on has two components. The first is the fixed rate that is set once every six months and stays with the bonds purchased during that six-month window until the bond is cashed. The second component is pegged to the Consumer Price Index (CPI) and is adjusted on May 1st and November 1st every year. Your total interest is the sum of these two components. If inflation goes up, then your rate of return goes up to keep pace with inflation. Likewise, if inflation goes to zero, then you are left with the base rate which is currently 1.0%.
DISCLAIMER: I have been recommending I Bonds (or ibonds) in my newsletter portfolio since August of 2003. I also have my own money invested in I Bonds. Back in 2003, they paid a much better rate of return than money market funds so they were a great investment vehicle to own when the Federal Reserve was raising interest rates.
With my disclaimer out of the way....
WHY I LIKE I BONDS:
- If you cash iBonds in before 5 yrs, you lose 3 months interest but sometimes, when the Federal Reserve cuts short term interest rates to very low levels, you can get HIGHER interest rates compared to 1 year CDs and money funds while doing so. This was the case in 2003 and 2004. After a year, they are 100% liquid. Thus, I Bonds are actually good even for short-term savings of at least a year! You MUST hold for a year.
- Taxes on I bonds are deferred up to 30 years when they mature or until you cash them in! It is like having an IRA where your interest compounds tax free until you cash them in!
- I Bonds give you some inflation protection. A well-balanced portfolio will have some money in I Bonds and TIPS for inflation protection.
- Annual Purchase Limits: Each year, you can buy $30,000 paper bonds (at your bank) and $30,000 via "Treasury Direct" for a total of $60,000 a year per Social Security number. You can shelter quite a bit of income, tax deferred, simply by buying some every year.
LINKS FOR MORE INFORMATION
- Treasury Direct Home Page
- More details about Interest Rates and Terms
- Cashing options: Explains how and were to cash in your I Bonds.
- FAQ: Frequently Asked Questions about I Bonds
- More Questions: I Bond Discussion Forum: Please feel free to post questions in the Suite101 forum about I Bonds.
KIRK'S INVESTMENT NEWSLETTER and Notification of new article here
My investment newsletter offers quite a bit of useful information including two recommended core portfolios composed of index funds or ETFs, tables, discussion of interest rates, The Fed Model, etc. that many say are worth the price of the subscription before accounting for the fantastic returns in my explore portfolio. I
DISCLAIMER: Answers & my words are general in nature, are not meant as specific investment advice, and do not necessarily represent the opinion of anyone but Kirk. Individuals should consult with their own advisors for specific investment advice.
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