With interest rates on most savings accounts and certificates of deposit well below 1%, the composite rate of 3.54% on newly issued Series I savings bonds is hard to ignore. The composite rate consists of a fixed rate, currently 0% on new bonds, and an inflation rate, based on the government’s consumer price index and adjusted every six months from the date of issue of the bond. The rates for the new bonds are set in May and November. The composite rate was 1.68% until May.
Kiplinger expects a 4.4% increase in overall prices this year, as the reopening of the economy, government stimulus measures and shortages contribute to the rise in prices. If inflation goes down later, a low inflation rate combined with a fixed rate of 0% could mean low returns on your Bond I. But “even if the total rate drops to zero in six months, which is highly unlikely, you will probably get a higher return with 3.54% for six months and zero for the next six months than with other options, ”says Chuck Bender. , a certified financial planner in Baltimore. (If the inflation rate turns negative due to deflation, the composite rate of an I bond does not drop below 0%.)
You cannot redeem an I Bond in the first year. If you cash it in before five years have passed, the penalty is three months interest, considerably less than the early withdrawal penalties on most five-year CDs. Even if you pay the penalty, “you’ll probably still be a long way from what you would be if you just earned the standard interest rate on your savings bank account,” says Matt Hylland, financial planner in Cedar Rapids, Iowa. A savings account or money market deposit account is the best choice for money that you may need to access immediately, such as an emergency fund, but bonds I can fit well into a bank reserve. longer-term savings.
Each year, you can buy up to $ 10,000 in electronic bonds I at treasurydirect.gov, plus up to $ 5,000 in paper bonds with your federal tax refund. You pay no state or local income tax on the interest, and you can defer federal income tax until you redeem the bond or it matures after 30 years .