The Treasury I Bond Rate Curve Caught in the Act Of The Inflation Reheating and Taxes (Extended Abstract)
It’s not surprising that demand for the inflation-protected savings bond soared in the past week, given that it’s virtually impossible to find any investment that offers a 9.62% return these days, let alone a “safe” one.
The next rate reset comes November 1. The new rate is likely to be higher than bank savings rates since it will take six months for it to take effect. If you buy a bond in this month, your rate will be adjusted on April 1 and set on November 1 of this year.
That’s a much better deal than you’ll see on any bank savings account. The interest rates are not high enough to beat the inflation which was at 8.2% through September. At worst, you could get a low-yield savings rate of around 3% at some places. And at the biggest banks you likely won’t even get 1%.
The catch with I bonds is this: To get the full amount of interest, you have to hold the bond for at least five years. If you enjoy, you can hold it up to 30 years. You can cash it in any time after the first year, but you will sacrifice three months of interest if you do so before the fifth year.
And, Flynn noted, remember that the rates will continue to change twice a year. If inflation falls below the Federal Reserve’s 2% target, your I bond rate will fall as well.
That could be a benefit to people who are planning to retire in a few years. They can tap the money as needed in their first few years of retirement.
And there’s a tax advantage, too: The interest you earn on your I bond will only be subject to federal income tax, but not state and local income tax if you live in an area that imposes one or both.
The Treasury’s web site temporarily crashed this week because of great demand for US Series I savings bonds. That could mean some investors’ requests may not be processed in time to lock in the bond’s 9.62% rate by the October 28 deadline.
Treasury said Thursday it has since fixed the underlying technical issues and has more than doubled the connectivity capacity of the site to allow more customers to successfully set up accounts and purchase bonds. The official said there could be some intermittent issues depending on traffic in the next two days.
To give an idea of how big the surge in traffic has been, the official said: “In the final days of the rate window, TreasuryDirect.gov has gone from an average number of concurrent visitors of a few thousand to being one of the most visited websites in the federal government.”