You only have a few weeks to take advantage of one of those opportunities that are almost too good to be true. You can invest in Treasury 1 bonds, also called Series 1 savings bonds, which pay an interest rate of 9.62%.
In one of the straightforward scenarios described below, you invest $75,000 in so-called I bonds. “Where else can you get a 9% return plus an ROI backed by the full faith and credit of the US government?” said Paul Schatz, president of Heritage Capital.
But from November 1, the Treasury will change the rate. It is ready to reset every six months.
Many experts predict that the new rate will be around 6%.
I Bonds: How does it work
I interest bonds are a combination of two interest rates. The first is the fixed income rate, which remains the same for the 30-year term of the bond. The other is the adjusted inflation rate, which is adjusted in May and November. This changing rate is based on changes in the seasonally adjusted CPI for all urban consumers, known as CPI-U.
It’s the variable component of the bond price that experts predict will lead to a November 1 rate cut to around 6%. The March-August period was 3.01%, says Ken Tomin, founder and editor of DepositAccounts.com, a bank account comparison site. The change in July was a 0.01% decline. August change was -0.04%. Tumin said, “If the change in September was similar to the change in August and July, we would have a 6-month change of 3.01%. On a yearly basis, this is just above 6.02%.”
Even the rate of close to 6% is much higher than many competing rates. The $262.4 billion Vanguard 500 Index Fund (VFINX) has a 12-month delayed return of just 1.43%.
The web-only $25,000 12-Month Highest Deposit Certificate listed on DepositAccounts.com has an Annual Return (APY) of 2.75%.
I Bonds حدود Limits
The main disadvantage of I bonds is that usually the maximum you can invest in I bonds annually is $10,000.
But using several legal loopholes, the couple can purchase additional bonds worth tens of thousands of dollars annually.
Here’s how these legal loopholes work:
Generally, you should purchase bonds by creating a TreasuryDirect.gov account.
Investing through your business
If you are self-employed, your business entity can purchase up to $10,000 of I bonds annually. Your business must create its own TreasuryDirect.gov account. Your business will use its own taxpayer identification number. If you have more than one business, they can each buy you one of these bonds. “These have to be actual business entities — whether they are sole proprietorships, partnerships, LLCs, or S corporations,” Tommen said.
If the spouse has their own business, which submits a return application, this business can purchase an I bond for your spouse.
Buying bonds through a living trust
Live credits can also buy you I bonds annually. Each fund must have its own Taxpayer Identification Number. Michael Wagner, co-founder of Omnia Family Wealth, says it’s unlikely someone would create credit for the sole purpose of buying bonds. “In my world, people tend to actually own such trusts for other purposes, such as estate planning, buying a home, and protecting assets,” Wagner said.
For a couple to obtain two ties in this way, they will need two separate trust funds.
Buying bonds for your kids
Additionally, if you have three minor children, you and your spouse can purchase up to an additional $10,000 of I bonds for each child.
The easiest way to make this purchase is electronically at TreasuryDirect.gov. But if you buy a paper bond so that every child can see and touch it, you’re restricted to a maximum of $5,000 per bond, not $10,000.
Also, the only way you can buy a paper bond is to use a tax refund. You must fill out IRS Form 8888.
However, you can then convert a paper bond into an electronic one.
Can you save $75,000?
So, how much can you invest in I bonds? For starters, you and your spouse can buy as much as $10,000 directly. If you are a dual-professional, entrepreneurial couple who both run a business, your company can buy you another $10,000 worth of money. And if your financial plan includes two living trusts, these entities can purchase an I bond for each of you. This will be a third investment of $20,000.
Furthermore, if you have three children, you can buy up to $5,000 in bonds each. That’s another $15,000.
If you can transfer that much cash and take the time to make each purchase with the required paperwork (on paper or electronically), that means that $75,000 is now earning 9.62%. That’s $7,215 per year. “I would say that makes it worth it,” Schatz said.
You can cash out I bonds after 12 months. But if you pay a sum of money before he reaches the age of five, the interest for the last three months will be forfeited.
“I have been recommending bond deposits to clients since last spring,” Schatz said. “Especially for those who hold unusually large cash balances, which do not earn much interest. These bonds are a great alternative.”
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