Kiplinger magazine runs a
feature each month to name the highest yielding savings accounts and certificates
of deposit in the country. It would be
comical if it weren’t so sad. The “high
yields” are often just half of one percent, rarely over 1% these days. That’s not to fault Kiplinger. They are just reporting what we already know:
it’s nearly impossible to make any money on your money these days outside the
stock market. (Incidentally,
Kiplinger cannot possibly check out every national, regional, and local
bank in the country, so there are surely some better deals out there
somewhere. I’ve found them locally, in
fact. It pays to shop!)
But this week the U.S. Treasury
announced its new interest rates for savings bonds. In light of the recent inflationary outlook
for our economy (which led to the biggest cost of living increase in decades
for Social Security recipients come 2022) I had expected the rate to go
up. I certainly didn’t expect this
though: from November 1, 2021, to April 30, 2022, Series I U.S. savings bonds
will pay 7.12% interest. The previous
six months’ rate of 3.54% was already a standout figure, but to see it doubled
literally overnight was a pleasant surprise for anyone searching for more money
on their savings.
Buying savings bonds is not for
everyone. First, it must be done online
through treasurydirect.gov and
requires setting up an account with the Department of Treasury. That’s not an obstacle for most people. But Series I bonds are like a certificate of
deposit in that you may not withdraw any money for the first twelve months; and
there is a penalty of three months’ interest if the bond is cashed before five
years. So money put into a savings bond
would best not be needed for any expenses in the near-term. Moreover, there is a $10,000 purchase limit
per calendar year, although a taxpayer could purchase up to another $5000 of I
bonds with his tax refund.
The rate on a Series I bond
readjusts every six months, so it could go down on May 1. Or it could go up, depending on what’s
happening with the economy and inflation.
It is even possible the rate could drop to 0%, though I find that
unlikely in the next year or two, at least.
But even if it did, getting 7% interest for even just six months then
getting 0% for the next six months beats getting 0.01% for twelve months. Even if you cash in after that time and
forfeit three months’ interest, according to the Treasury website the interest
penalty would be the most recent three months’ interest. If you weren’t getting any interest those
last three months, then the penalty is $0, if I understand that correctly.
Savings bonds might seem a little
old fashioned, but they look like a solid investment to me. They are backed by the full faith and credit
of the U.S. government (as good as an FDIC-insured account at the bank) and the
interest is not subject to state and local taxes, making the effective after-tax
yield even higher. If used for qualified
educational purposes, the interest can even be exempt from federal taxes. I used that benefit for my sons’ college
education with Series EE bonds. See the
website for full details.
If you have some cash you don’t
need for a few years but would like to see it grow in a safe account with an
above average interest rate, Series I savings bonds might be for you.
Until next time,
Roger
“Invest in seven ventures, yes, in eight; you do not know
what disaster may come upon the land.” Ecclesiastes 11:1 NIV*
*Scripture quotations taken from the Holy Bible, New
International Version® NIV® Copyright © 1973,
1978, 1984, 2011 by Biblica, Inc.™
Used by permission. All rights
reserved worldwide.
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