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What's an I bond, and should I invest in one? Financial expert explains

Cash money
Posted at 5:37 PM, Jun 23, 2022
and last updated 2022-06-23 17:37:51-04

The new I bond interest rate is at a record 9.62%, which seems amazing for a safe, US-guaranteed savings bond.

Here to help us understand what this is all about is our financial expert, Carl Carlson, CEO and founder of Carlson Financial.

According to Carlson, an I bond is a 30-year government bond. The "I" actually stands for inflation.

"It's linked to the CPI, the consumer price index, so the interest rate is going to have a component based on what's happening with inflation," Carlson explained. "And right now that inflation is so high, so we have a record high of 9.62% on that I bond."

The 9.62% is not fixed for 30 years, however — it's fixed for six months.

"So once you buy it, you're gonna get that 9.62% for six months, as long as you buy it before the end of the year. So they give you a certain time period," Carlson said. "If you buy before the end of the year, you're gonna get 9.62% for the next six months, and then it's variable. So it floats every six months, and they link it back. There's a fixed component and a variable component and the variable one is tied to the CPI."

You don't have to keep the I bond for the full 30-year term, but you do have to keep it in there for 12 months.

"If this is money you need in the next couple of months, don't put it in there," Carlson explained. "You've got to keep it in there for 12 months, that's the minimum. If you take it out before five years, then you're going to have a penalty, which is equal to three months worth of interest. So it's not a huge penalty, that they're going to take off that three months worth of interest. If you go past the five years, then you're all good to get the money back out whenever you want."

Carlson said there's also a maximum you can get — $10,000 per person per year. If you're married, you can get $10,000 in I bonds, and so can your spouse.

"So come January 2, you could each get another $10,000. So you can build up a little bit that way," Carlson said. "If you have a business, your business can also get $10,000. If you're getting it with a tax refund, you can get another $5,000 there, so if you get really strategic, you can start to build that thing up."

You also can't buy it just anywhere. According to Carlson, you can only buy them from the Treasury Direct website.

"You have to buy it there directly," he said. "You can't buy it with IRA money. You can't buy it in a brokerage fund. You got to go online, get it out of your checking account, and it's a little bit of a hassle."