Broker Check

Mosaic Weekly Article 12.23.2021

December 23, 2021

Merry Christmas!  We have all certainly endured another interesting year and having some down time with family and friends is important for our overall health and well-being. Steven in our office spent some time researching one last "gift" to give yourself before the year closes out. You might want to save this email for when you need a break from the chaos. Happy reading!

As we mentioned in a previous weekly update, savers are not being rewarded by holding cash in the bank. We are constantly receiving inquiries asking about a place to park cash where one can earn some amount of interest with relatively low risk. Usually this is additional savings that the client has built up and may not need right away. But they also don’t want the volatility and risk of investing in the market. Thanks to the recent rise in the Consumer Price Index (CPI), there is now an attractive offering that may be suitable for savers looking for more yield than a savings account with relatively low risk.  These instruments are called I-Bonds.  

What is an I bond? “A savings bond that earns interest based on combining a fixed rate and an inflation rate.” – according to the Treasury department’s website. Every six months the Treasury determines the appropriate inflation rate to be applied for the next six months. In recent years the rate hasn’t been relatively high but currently the composite rate for I bonds issued from Nov 2021 – April 2022 is 7.12%. That’s almost 11 times higher than the national average savings account rate of .60%! At this rate, it would seem like a “no brainer” to park some cash in an I bond, but as with anything, there are always limits to anything that would seem too good to be true. First off, there is a limit of how much you can purchase. Individuals may only purchase $10,000 worth per calendar year. Second, you must keep them for at least 1 year and if you redeem them prior to 5 years, you will lose the previous 3 months of earned interest. For example, if you cash in an I bond after 24 months, you only receive the first 21 months of interest. After the 5-year period, you will not lose any of the earned interest(think of this as a surrender penalty). Third, the interest rate you receive will be reset to a new figure every 6 months based on the current CPI readings. One year ago in Dec 2020, I bond rates were only 1.68%. If CPI rates drop, you could be looking at a much lower rate after your first six months.

Like any type of investment, you must decide whether it is right for you, by weighing the pros and cons. Currently, I bonds are offering quite an attractive yield for relatively low risk. That’s hard to find these days. Although there are limits of $10,000, an individual could purchase $10,000 worth prior to year-end and then purchase a second $10,000 directly after the new year for a total of $20,000. A married couple could lock in $40,000 using the same strategy. At the current composite rate of 7.12%, a married couple purchasing $40,000 could earn roughly $2,848 in earned interest if the I bond rate remained the same for a full year(which is only subject to federal tax, not state or local).

I-Bonds are issued directly by the U.S. Treasury Department via their website: (link below). Note: We cannot purchase these for you in your investment accounts, you will need to visit the Treasury Direct website to do so. 

If you have any questions, or would like more information on I bonds, please don’t hesitate to reach out to us.

However you may be choosing to spend the next several days, I hope you have a safe and joyous time!