I Bond Rate Surprise | Fixed Rate More Than Doubles

yesterday treasury direct released and I should say early the new ibond rates and there was a big big surprise we're going to talk about in today's video hey everybody my name is Rob Berger this is the Financial Freedom show where we talk about investing retirement and Financial Freedom if those topics are important to you I encourage you to you know subscribe to the channel I also send out a newsletter every Sunday morning you can sign up for that with the link below this video so there's actually two surprises yesterday in the ibonne market the first is that they released the numbers in April I don't think that's ever happened at least that I've ever seen it's always in May why they released him early I don't know but there was also a big surprise with the number recall that the I bond rate consists of both a fixed rate that lasts for the entire 30-year term of the bond and an inflation rate that adjusts every six months for the previous I Bond the one that's sort of ending in this month in April the fixed rate was point four percent which may not seem like a lot but that was actually a pretty big jump from the zero percent we've been having for quite quite a long time well the new fixed rate more than doubled let me show it to you this is treasury direct and you can see the new rate that will be effective beginning on Monday May 1st uh 4.3 percent now I know that may not seem like a lot compared to some of the numbers uh that we have seen in the recent past with I bonds including an inflation rate at one point that put the rate over nine percent but here's here's really the big news it's right here the fixed rate more than doubled from point four percent to 0.9 percent of course the rest of this number comes from the inflation uh part of the rate which only lasts six months but that point nine percent will last for as long as you own the I Bond up to 30 years and as you can see this rate will apply to any bonds issued or purchased between May 1 of this year and October 31st now let's first put this point nine percent into some perspective uh it hasn't been that high for 15 years we can and by the way I'll leave links to everything I'm showing you below the video but we can see the fixed rate the history so right now are starting in May 0.9 it was 0.4 as I mentioned it had been zero zero for quite a while but to get uh to something higher than 0.9 look at this we've got to go all the way back here we go November of 2007 and of course if we go way back into the late 90s when I I Bonds were issued here 340. that would be nice right but still 0.9 is as high as the fixed rate has been in 15 years and that raises the big question well should we buy I bonds now as I mentioned in a video just a couple of weeks ago I'm not a fan of I bonds now as a short-term uh investment and I'll show you why remember the total return right now the total yield is 430 that lasts for six months 0.9 of that of course lasts for 30 years but if you were saying look I may want to buy it and sell it in a year or so I remember you've got to hold them at least a year and if you sell before five years you lose three months of interest but we can we can actually just do better than that here I'm looking at no penalty CDs again this is from my site and I'll leave links to all of this right now the highest no penalty is five percent at least that I can find and if you know of a better one please let me know I'll add it to the website that's for nine months we can get 492 for 12 months now with an eye bond you don't pay state income tax but I still think for most people given that the I bond rate is 430 at the moment we don't know what it'll be six months from now it's probably not the best short-term play and by the way depending on how much money you have I was looking at our overall CDs now these are not no penalty but we can as you can see track almost 850 CDs at the moment and this does require a minimum deposit of 250 000 this would be what's called a jumbo CD but you can get 5.6 percent uh for a year here we can get 5.35 percent for 20 uh 22 months so if we were thinking on the shorter term basis I still don't see I bonds as the answer and by the way on a very short term basis look at this we we can now get a savings account for over five percent now of course that can change daily uh but still I think it kind of underscores the point that at least for me I don't see I bonds as a as a short-term kind of investment now when the interest rate was over nine percent you could do the math and say yeah it might make sense even losing three months of interest to think of an i Bond as perhaps a short-term investment today I don't think so but at point nine percent on the fixed rate I think it is a reasonable long-term investment I'm not going to get you know overly excited about a 0.9 real return although for bonds with that guarantee I think it's a reasonable option now how do we compare it I think one thing to compare it to are tips so let's go to the real yield real yield we'll look at the 10 uh year maturity and you can see the real yield here of course it was negative for quite a long time as we know it was much higher at one point but it's come down to 126 yeah the last reading was 1 26. so that's sort of the real yield on a 10 year tip and that raises the question well rob you know uh 1.26 isn't that better than 0.9 and I was an English major and even I know 1.26 is higher than 0.9 but there are some fundamental differences between tips and eyebots the one thing to keep in mind is with an i Bond you always sell it back to the government it's not traded on the open market the significance of that is is once you're allowed to sell the I Bond after a year you could always sell it and you're not going to take a loss because say interest rates have moved on even perhaps gone up in the case of tips if interest rates go up the value of that Bond goes down of course you're selling that on the open market to another investor with an i Bond you're selling it back to the government and you're going to get the face value of the I Bond plus any interest you've earned minus that three-month penalty if you sell it uh before uh five years so I think for a lot of investors they like the comfort of knowing that they're not taking on that at least in the short term that interest rate risk now if you knew you were going to hold the tips bond to maturity and it was yielding a real yield when you bought it of 1.26 percent then yeah that would be better than an i Bond but you know sometimes life happens and while we might think we're going to hold something to maturity uh you know maybe things happen and we have to sell a little early and we might like that Comfort on the I Bond now as you no doubt no there's a limit to how much you can buy with an i Bond ten thousand a year and many of you may have already bought in 2023 ending this month it was what 6.89 that included a 0.4 fixed rate and the rest in inflation rate so I know a lot of you have probably already purchased an i bond this year and so if that's you remember the gift Bond strategy I've done a video on that and if I you know if I can it'll appear somewhere above me right now you can check out that gift Bond strategy I will also link to two articles that I think are very good on the gift Bond the I Bond gift strategy the first is from tips watch he talks about it in an article that he just published actually about this new rate and then this article from the finance buff goes into great great detail I will tell you the basics of an eye bond strategy and like the spouses might use it so I could I could if I'd already purchased and my wife had already purchased I bonds this year I could buy next month a new I Bond as a gift for my wife I would put it in a gift box that's what I call it in my account she could do the same thing for me now I couldn't give it to her this year if we've already both bought uh ten thousand dollars in eye bonds because the year in which I give her that I Bond as a gift that counts towards not not my uh purchase limit but hers and so in our hypothetical if you'd already purchased ten thousand in I bonds I couldn't give it to her this year but the good news is it earns interest while it sits in my gift box so it's not as if she's losing out and I can give it to her next year or the year after and actually I could do more than ten thousand in I bonds but the thing to keep in mind is I can only give her ten thousand dollars a year in this gift right because it counts towards her purchase uh limit and until I give it to her the the I Bond kind of sits in limbo I can't cash it out because I don't own it I actually put her down as the recipient when I'm to make this gift purchase I haven't transferred it to her yet so she can't cash it out so it's kind of in limbo until I actually give her the I Bond so you want to keep that in mind it can be used I think to a point to perhaps take advantage of certain interest rates if that's what you want to do but just keep in mind their limitations again I will link to those articles and you'll see my video on it as well and you can check it out and decide if it's right for you as for me I think the point nine percent which for me was a big surprise I thought it might go up from 0.4 but boy I didn't think it more than double I think it probably makes ibots a bit more attractive for me in 2023 although again I would see it more as a long-term investment and in fact I have an older I Bond that's got a zero percent fixed rate and once the current inflation rate expires on my I Bond I'm going to go ahead and cash that in I might just use that money to make a new purchase this year because you know a point nine percent fixed rate is better than the zero percent I'm getting now so there you go that's the deal on I bonds big surprise but both that they let the numbers out a few days early I don't think that was a mistake but no one's really sure why they did that but also the fixed rate I don't think even the the experts like to predict these things guessed that one correctly it more than doubled to point nine percent well there you go uh if you have any questions leave them in the comments below I'll be happy to help you out any way I can and until next time remember the best thing money can buy is Financial Freedom

Channel: Rob Berger

Views: 101,270

Keywords: i bond, i bonds, i bond rate, i bond rates, i bond fixed rate, i bond inflation rate, treasury direct, TIPS

Id: pOumbv4t-3o

Length: 10min 33sec (633 seconds)

Published: Sat Apr 29 2023