A safe investment that earns nearly 10% (Article)

April 25, 2022
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A safe investment that earns nearly 10%

Earlier this month the Department of Labor released its March Consumer Price Index report.  The number showed a four-decade high price increase of 8.5% from March of 2021 to March of 2022.  As consumers, we’ve felt this record increase in prices every time we go to the grocery store or the gas pump.  It’s impacted our family budgets and caused us to reevaluate our spending.  In general, inflation isn’t much fun.

There is however one bright spot.  I-Series bonds are interest sensitive bonds that are issued by the U.S Treasury.  When inflation goes up, so does the interest rate.  With the DOL latest numbers, I-Series bonds are projected to rise from their current 7.12% annual rate to a 9.6% annual rate in May.  The interest is compounded every six months and the rate is adjusted every November and May but will never fall below 0%.

There are a few important things to note with I-series bonds

  • The rate is only locked in for 6 months.
  • You are limited to $10,000 per calendar year in contributions per person
  • You can’t take the money out for the first 12 months
  • If you take the money out in less than 60 months you will forfeit the last 3 months of interest.

If you make a contribution to an I-Series bond today (or anytime before May 1) you will lock in the 7.12% current rate for 6 months.  After 6 months the rate will be adjusted to the rate declared in May (according to projections from the Wall Street Journal, its likely 9.6%). So, for the full year you own the bond, you’re locked in at an annual 7.12% for the first six months for total interest earned of 3.56% and for the next six months, you would be locked in at the expected 9.6% for another 4.8%. That’s quite a deal even if you forfeit the last 3 months of return, which would be 2.4% in this case. Using these percentages, your initial investment of $10,000 would grow to $10,604.54 in one year.

Visit treasurydirect.gov for more information and to purchase your I-series bond

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MoneyAdvice@Work® is an employer-sponsored financial wellness benefit designed to connect employees to financial professionals who educate, advise, and coach without the sales pitch. Learn more about our service offering here. The summary/prices/quotes/statistics contained herein have been obtained from sources believed reliable but are not necessarily complete and cannot be guaranteed.  Past performance results are not necessarily indicative of future results. MoneyAdvice@Work® is offered through Francis Investment Counsel, a Registered Investment Adviser with the SEC. Francis Investment Counsel does not provide tax or legal advice.