John Lim, physician, writer and blogger for HumbleDollar, joins “Squawk Box” to discuss I bonds, which are tied to inflation. For access to live and exclusive video from CNBC subscribe to CNBC PRO:
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I Bonds: A ‘Virtually Risk-Free’ Investment
By John Lim
When it comes to investing, many individuals have different risk tolerances. Some prefer higher risk ventures with the possibility of higher returns, while others lean towards more conservative options that offer stability and security. If you are someone who falls into the latter category, then I Bonds may be the perfect investment opportunity for you. With their virtually risk-free nature, these bonds provide a safe haven for your hard-earned money.
I Bonds, also known as Series I Savings Bonds, are issued by the United States Department of the Treasury. They are a form of government savings bond that were introduced in 1998 and offer protection against inflation. Unlike other investments, I Bonds are backed by the full faith and credit of the U.S. government, making them an exceptionally secure option.
One of the key benefits of I Bonds is their protection against inflation. The interest rate is composed of two components: a fixed rate and an inflation rate. The fixed rate remains constant throughout the bond’s lifetime, determined at the time of purchase. The inflation rate, on the other hand, is adjusted every six months to reflect changes in the consumer price index (CPI). This ensures that the purchasing power of your investment is maintained, making I Bonds an ideal choice for those seeking to safeguard their wealth against inflation.
Another reason why I Bonds are considered virtually risk-free is that they are not subject to market fluctuations. Unlike stocks and mutual funds, I Bonds do not depend on the performance of financial markets. They offer a stable and predictable return, making them an excellent option for risk-averse investors who value security above all else.
Furthermore, I Bonds have a set maturity period of 30 years. Although you can redeem them earlier, doing so within the first five years will result in a penalty equivalent to the last three months of interest earned. This maturity period encourages long-term investing and eliminates the temptation of making impulsive decisions during market downturns. By having a well-defined timeframe, I Bonds allow investors to plan and structure their finances with certainty.
In addition to their risk-free nature and protection against inflation, I Bonds also have tax advantages. The interest earned on I Bonds is exempt from state and local income taxes, while federal tax liability can be deferred until they are redeemed or mature. This provides investors with an advantage over taxable investments and further enhances the potential returns on their investment.
While I Bonds are undoubtedly a great investment option, they have some limitations. The maximum annual purchase limit is set at $10,000 per individual. However, purchases made with one’s tax refund are exempt from this limit. Moreover, I Bonds cannot be bought or sold on secondary markets; they can only be acquired directly from the U.S. Treasury’s website. These limitations, though understandable, are in place to protect investors and maintain the security of the investment.
In conclusion, if you are looking for a low-risk investment opportunity, I Bonds are the way to go. With their virtually risk-free nature, protection against inflation, and stability, they provide a haven for conservative investors. While they may have some limitations, the overall benefits of I Bonds make them an attractive option for those seeking long-term security and growth. So, why not consider adding I Bonds to your investment portfolio?
Until you need to communicate with Treasury Direct. Good luck.
9.62% rate incoming may 1st
Question… So if the limit is 10k per year, does that mean you can purchase 10k per year and keep your existing? So lets say in 10 years, you have 100k in I bonds?
Where do we go to buy I bonds?
Is it $10m annually? Monthly?
I bond interest is not subject to income tax until the bonds are redeemed, and they are exempt state income tax.
00:51
The reset aint gonna happen! Just watch!
I have been investing from time to time in I bonds for 20 years. (pays well in the long run)
usa is the biggest waster of gas in the world
its a big problem
In its relentless pursuit of oil, the shale industry burns more and more gas into the air. This wasted gas exceeds the yearly demand of nations such as Colombia.
The rate of flaring in the Permian basin reached a record high in the first three months of this year, averaging 661 million cubic feet per day (MMcfd), according to Rystad Energy. That is more than double the amount of flaring for the same period from a year earlier.
boycott usa until they stop wasting all the gas we have
boycott usa today
Would it be wise to use a credit card cash transfer at 3% fee to buy 10K of these bonds? Free money right?
I've been buying I bonds since 2002 & this video forgot to mention that they were yielding 0% or so, for a few years!
The original I bonds, 1999 to 2001, paid a guaranteed 3% to 4%, even if inflation was 0%! They were a great buy!
I loaded up today. Lias up again in January Incredible rate.
It seems I could sign up for an I-Bond in December, hold it a year, and then cash it out with the three month penalty. Since the penalty applies to the last three months it is essentially a 9 month CD that earns 7.12% for a few months and then some other rate (probably lesser). I don't see much of a downside to this. True CD rates for the equivalent period of time aren't even 1.00% and the market is like a yo-yo lately.
No such thing as "risk free".
Unless I missed it they didn't cover the biggest clause to be aware of for I bonds. Once you buy the I bond you cannot cash it in for 12 months. So while this is a great place to store your extra cash/emergency fund right now, you shouldn't buy I bonds if it means depleting all your cash in the process as it becomes illiquid for 12 months.
Do your research and see if it makes sense for you. For many with significant emergency funds sitting in cash/online savings, it probably does.
What happen if there is hyper inflation lol, 7.2% is not risk fee anymore
LOL. no it isn't
No you still lose money because monetary inflation is 2-3x CPI consistently. Nobody has a clue…
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10k limit should be raised.
Attainable in crypto
Oh right risk free … hmmmm … dubious