What if I told you that you could invest $10,000 and get a guaranteed 7% return with absolute minimal risk? If you’re smart you would probably immediately guide your mouse to the eXit button to close the browser window. But wait. This is for real. No, it’s not a cheap plug to buy silver, penny stocks or crypto. These are actual savings bonds backed by the U.S. Treasury.
On November 1, 2021, the U.S. treasury began offering a product called I-series Bonds. Unlike traditional U.S. savings bonds that have paid virtually no interest as of late, I-Series Bonds pay a combination of an inflationary rate on top of a fixed rate. Until April 1, 2022, the rate is set at 7.1%. Yes, you read that correctly. Though the bonds are not 100% guaranteed, they are backed by the U.S. government. While the U.S. will surely default one day due to its tremendous level of debt, its probably not something to worry about anytime soon. After all, if the U.S. government goes into default, you probably have a lot bigger things to worry about than the payment of your savings bonds.
The bonds must be purchased directly from the U.S. treasury. There are two ways to do this. The best way is go to treasurydirect.gov and buy the bonds electronically online through the TreasuryDirect Portal. If you want to go old school and purchase paper bonds like your grandparents through the mail, you can tell the IRS to direct your tax refund to go towards a bond purchase. You will need Form 8888, Allocation of Refund (Including Savings Bond Purchases) to do so. Simply fill out the form and follow the directions. I recommend the ease of buying direct because you don’t have to wait until your file your taxes. There are also key advantages to buying directly.
Being that the rate being offered is extraordinary for such a safe investment, there are some restrictions on this product.
- If you are happy purchasing your bonds electronically you can invest a maximum of $10,000 per calendar Those who took advantage of the product offering in the last two months of 2021 can purchase another $10,000 right now. Those who choose paper bonds are limited to $5,000 in a calendar year.
- You can purchase as little as $25 at a time for electronic, $50 for paper.
- You cannot cash the bonds out for 12 months after purchase. While the bonds will pay some rate of return for 30 years like any U.S. bond, there is no guarantee that the lucrative rate of return will last that long. While you can cash out your bonds between years 2 and 5, you will lose the last 3 months of interest. Even with this slight penalty, you still come out way ahead versus traditional savings bonds. After 5 years, you can cash out your bonds with absolutely no penalty.
To purchase the bonds electronically, you must create an account with TreasuryDirect. One thing that is a little different is the manner in which you have to type your password each time you log in. Rather than type your password using the keyboard on your computing device, you will use your mouse to select your password characters. This is actually a great security feature as it prevents key loggers from capturing your password. This process is exemplified in the screenshot below.
Once you have created an account, select the I-series bonds to purchase as shown below.
You will then have to type in your bank account information you want to use to make the purchase. Even if the rate of return drops significantly on April 1, it is still a no brainer to capture the 7% rate of return for as long as possible. Normally one must invest in a stock index fund to attain a 7% rate of return. If you have money in an online savings account that is actually losing value during these high inflationary times, you should consider this generous offer by the Treasury Department while it lasts.
