Soaringin the U.S. have boosted the cost of everything from mortgages to credit cards, socking households still hurting from the high inflation. The silver lining? It’s also significantly boosted i and CDs.
Another investment savers may want to consider that has benefited from the upward drift in rates is Series I savings bonds, known as “I-bonds.” The U.S. Department of Treasury raised the rate on I-bonds last week to 5.27%, up from 4.35% in January.
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I-bonds today have “a great interest rate,” WalletHub CEO Odysseas Papadimitriou, the CEO of WalletHub, told CBS MoneyWatch, while noting that buyers should be comfortable holding them for at least five years. That’s because an investor loses the interest generated from the bond if it’s cashed out before the five-year mark.
I-bonds are a good investment as long as inflation remains high, Papadimitriou said. But if the Fed continues tolike it did in September, the lure of I-bonds could vanish, he said.
“It’s very hard to predict the future,” Papadimitriou said. “If someone had a crystal ball and say ‘Oh look, inflation is going to keep going up for the next few years and it’s not going to come down,’ then maybe an I-bond is a good idea.”
Typically a niche investment vehicle, I-bonds have exploded in popularity in the last two years as inflation has soared. I-bonds have a minimum amount someone must invest and a maturity date like regular bonds, but their interest rate adjusts twice a year.
The Treasury Department changes the interest rate on November 1 and May 1, and the rate is calculated based on the rate of inflation over the previous six months. When the new interest rate is announced, it applies to every I-bond issued prior to the announcement date and is good for six months, until the next rate is set.
I-bonds earn interest every month and compound it every six months. However, the interest isn’t actually paid out until the bondholder cashes out the bond, or at the end of its 30-year lifetime.