iBonds – Are they for real? And should I go get one?

Benjamin Haas |

We’ve gotten a few questions on iBonds these last few weeks. In an interest rate starved world, they sure have grabbed some recent headlines posting promises of 6% - 7% return on principal. The question is, are they for real? And if so, what’s the catch?

Yes, iBonds are real. iBonds are actually US Treasury issued bonds. They are issued with two rates, a based rate which is fixed (and by the way, that fixed rate is currently essentially 0%) and then a variable rate tied to inflation. As you may know, inflation is back in the economy which is why these bonds have resurfaced as something that an investor may consider. That inflation rate resets every six months and it’s a formula that combines those two rates that then dictates the interest you can expect on this type of bond. So yes, for bonds issued between November 2021 and April 2022, you can expect a combined rate of 7.12%. This is real.

I can already hear you shouting, “THIS IS AMAZING!” Well, like many things in life, there’s a couple “catches” to note. First, much like a CD, you have to hold the bond for some time. It’s not 100% liquid like a savings account or a mutual fund or other similar types of investments. Bonds can earn interest up to 30 years (interest resetting every 6 months though so the current 7.12% is NOT guaranteed). You Must hold them for a minimum of 1 year. And if you cash it in within the first 5 years, you surrender the last 3 months of interest when you do.

The bigger catches are as follows: you can only purchase $10,000 worth of bonds. And you must purchase directly through the US Treasury. Hence, we can’t do this for you, nor can we suggest this be a large portion of your lump sum savings with a maximum investment of $10,000. By that math, this is essentially a $712/year of interest decision, if you can forgo having access to $10,000 of your savings.

So, should you get one? That’s up to you and the state of your liquid savings at the bank. But they are real, and for right now, they do offer a very attractive rate.



Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

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