,,7% Treasury Savings Bond"

Discussion in 'Risk Management' started by Nobert, Jan 11, 2022.

  1. Nobert

    Nobert

    Source :
    https://www.barrons.com/articles/wo...easury-savings-bond-51641854059?siteid=yhoof2

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    One of the best deals for savers now are Treasury Series I savings bonds now paying a 7.12% interest rate.

    The savings bonds, available electronically through TreasuryDirect, pay interest based on the inflation rate, as measured by the consumer price index.

    Individuals are limited to a purchase of $10,000 annually. The bonds need to be held for 12 months and have a 30-year maturity. If they are redeemed before five years of ownership, holders lose three months of interest. They are available for as little as $25. Individuals can buy an additional $5,000 annually in paper form using proceeds from income-tax refunds.

    The series I bonds pay interest, which is added to the price of the bond, every six months based on the all-urban CPI index. The most recent 12-month increase in the CPI index was 6.8% for November.

    The bonds have a fixed rate, which is now zero, plus the inflation component that is reset every six months. The rate is set on the first business day of May and November. Buyers will now earn the 7.12% rate for the first six months that they hold the bonds.

    With inflation likely to run high at least for 2022 and potentially longer, the series I bonds offer a good alternative to bank saving accounts now paying close to zero and to most bond investments. They offer protection against the event that bondholders should fear most: high inflation.

    The problem with Treasury notes and bonds is that they don’t provide that inflation protection. Their real, or inflation-adjusted, rates are deeply negative now with most Treasuries yielding in the 1% to 2% range. And Treasuries may have negative real rates for years, heightening the appeal of I bonds.

    The savings bonds are well suited to small savers and as a complement to a 401(k) or IRA retirement plan, which have limited annual contributions. They also can be paired with 529 college savings plans.
     
  2. How does the government even pay for these bonds? Just sell more treasuries?
     
    Nobert likes this.
  3. In a year when inflation drops off but interest rates rise you have a dud from how it is described...
     
    Nobert likes this.
  4. xandman

    xandman

    You can cash it in with penalty of a quarter's interest and buy the new issue which should offer a better real rate component. It is probably set at 0% right now and won't go above that until actual real rates are positive. ("actual real" 5-10yr US - inflation)

    Either way. You can't lose money in real terms unlike TIPS which locks you into a negative real rate.

    Free lunch. But at a 10k limit, screw the paper work.
     
    Last edited: Jan 12, 2022
    Nobert likes this.
  5. Yeah I think for first 2 years you can earn 6 to 7% given where inflation is but capped at $10k takes the buzz off....