by now you've probably heard something about I Bonds the big news this month is that the interest
rate was just updated by the federal government to 9.62 percent holy crap is that for real a 9.62
annualized rate of return for the next six months where on earth are you getting that right now
in this video I am doing a recap of my previous in-depth I bond video from the last November
if you're looking for an in-depth review stick around until the end and i'll provide the link to
that video but in this one i am going to quickly review how I Bonds work what the limitations are
and whether they deserve a spot in your portfolio stick around
hey there Colin Exelby certified financial planner here I'm the owner of the virtual financial
advisory practice celestial wealth management and i provide financial planning to business owners
and their families that just make sense i bonds also called inflation linked bonds are issued by
the united states government and are designed to protect the value of your cash from inflation now
unless you have been living under a rock living off the land in Montana you're being impacted
by the highest inflation rate in the past 40 years the April 2022 consumer price index report
on inflation hit 8.5 percent unleaded gasoline increased 49 year over year food at home was up
a record 10 not to mention almost everything else that we buy now i realized that every
person's financial situation and risk tolerance is different and each family is being impacted by
inflation in a different way this is not specific investment advice this video is for educational
purposes do your own due diligence and discuss eye bonds with your financial and tax advisors
as interest rates are subject to change all right now that that's out of the way let's get to it
what is an I Bond I Bonds are a unique low-risk investment issued by the U.S. treasury
to protect your money from losing value due to inflation now because i-bonds are issued by the
U.S. government they have nearly zero risk of default making them a very safe investment how
is the interest calculated I bond interest is calculated by combining a fixed interest rate
and an inflation adjusted rate as of May 2022 the fixed interest rate is zero so your entire rate of
return is based on the current inflation rate and that rate updated a few days ago is currently 9.62
annualized that is up from 7.12 last November the interest payment is accrued monthly
and automatically added to the bonds value twice a year you don't actually receive the interest
until you cash in the bond now how are I bonds taxed the owner of the I Bonds has the option
to pay the federal tax on the interest annually or when the bond is cashed in you get to choose
another nice advantage is that series I bond interest is exempt from state and local taxes
so your after-tax returns are even higher if you live in a state that taxes income
this makes them really attractive in high-tax states like California and New York can I bonds
act like a savings account i-bonds can be an ideal part of an overall cash management strategy but
are definitely not a savings account and i-bond must be held for a minimum of 12 months after the
purchase but after that it can be redeemed at any time a savings account provides you daily
liquidity and is more appropriate if you may need funds in the next 12 months there's a catch though
to the I Bonds if you redeem an i-bond after month 12 but before year five you lose the prior
three months of interest but at today's low interest rates that penalty would most
likely still yield you way more than sitting in a checking or savings account that makes I Bonds
an ideal investment for funds you don't intend to invest in growth-oriented investments that you do
not need in the next 12 months and you can hold these i-bonds for a maximum of 30 years if you
want to now i've talked with people who say well all the I bonds do is keep pace with inflation
well that's exactly what they're designed to do and money that's sitting in checking savings CDs
or fixed rate bonds is not and at the moment neither are many growth oriented investments
so how much can you invest this is one of the frustrating parts for many investors digital
eye bomb purchases are limited to ten thousand dollars per social security number per calendar
year and you must have a social security number and either be a us citizen living outside the U.S
or a U.S resident but as a parent you can also invest in eye bonds on behalf of a minor child
so for example a married couple with two children could invest up to forty thousand
dollars each calendar year in July bots 10k each for each spouse and 10k each for each child this
could be a great addition to a college savings strategy if you have children that are getting
close to college if you have a trust with a separate EIN you can invest in I bonds through
the trust allowing an additional ten thousand dollars if you own a company with a separate
EIN you can also invest through your company allowing an additional ten thousand dollars
how do you actually invest your money in I Bonds thankfully for once the government makes it easy
you head over to treasurydirect.gov you click on open an account under the account login on the
right hand side you then click treasury direct it takes just three steps to open an account
and invest in I Bonds it's all online click the apply now button this is where you choose what
type of account you are opening are you opening as an individual a business or a trust follow the
directions from here link your bank account and bam you have yourself an investment in I Bonds in
summary if you have money sitting in checking or savings accounts that is not earmarked for growth
investing in things like stocks and real estate and cryptocurrencies things like that and those
funds are not needed in the near future i think it makes sense to take a hard look at investing
in I Bonds i have no idea what stocks bonds crypto or real estate will do in the future but for the
next six months we know that these bonds will pay 9.65 annualized if you're looking for more
in-depth info on I Bonds check out this video next and if you're looking to create a tax-free
income or retirement and who doesn't want to do that check out this video too get clear be clear