Opinion: There’s a rush to buy I-bonds to secure a high yield, but there could be an even better deal next week

It’s hard to imagine there could be a better deal to park up to $10,000 in savings than Series I bonds, right now. The 9.62% return is top notch and you can count the hours until it disappears.

That’s why there’s a mad rush to the TreasuryDirect.gov website, the only place to buy government-issued savings bonds. But before diving in, there are a few things to know.

Most importantly, it may take some patience. The TreasuryDirect website states: “We are currently experiencing unprecedented demand for new accounts and purchases of I Bonds. Due to these volumes, we cannot guarantee that customers will be able to make a purchase by the October 28 deadline for the current price.

The Treasury data page had so far noted a drop in sales for October, at just $703 million, from the previous six months. The peak was reached in May, with a record close to $5 billion in sales.

Since the TreasuryDirect website has a history of being clunky and there has been a recent overhaul, any amount of traffic could crash servers. Or all the hype of the last few days of the very high rate could persuade a large number of last-minute buyers.

Those rushing to buy should be aware of a few caveats regarding buying I-bonds in the next two days.

  • You’re locked in for at least a year and your combined rate for that period will be around 8%, given that the rate available on November 1 will likely be 6.48% based on analysis of data on inflation.

  • After the lock-in period you may want to wait a bit longer to get the best rates, you may only want to invest money that you don’t need access to for 15 months or more. Indeed, if you cash in I-bonds after one year but before five years, you lose the last three months of interest. Dave Enna, founder of TipsWatch.com, a website that tracks inflation-protected securities, suggests waiting at least three months after the market’s highest rate to get the maximum return.

  • Other investments may soon compete with I-bond rates, and may be easier to manage and more liquid. The Federal Reserve is expected to raise interest rates again at its November 2 meeting, and possibly again in December. This will push up the rates of other investment products, like Treasury bills and CDs, TMUBMUSD10Y,
    which are already in the 4% range for a shorter duration than the I-bond lock. TIPS, which are also inflation-adjusted, currently have a higher real yield, approaching 2%. In contrast, I-bonds always have a fixed yield of 0%.

  • If the real yield on I bonds goes above zero from November – or even six months later – that could make them a bargain in the long run relative to the current supply. The rate of 9.62% is surely enticing, but it is only for six months. I-bonds consist of a combination of the fixed rate and the inflation-adjusted component. So if you plan to hold I-bonds for a while, having a higher fixed rate would be a boon in future years when inflation is likely to be lower.

  • You don’t have to buy $10,000 all at once. Yotta, a fintech banking platform that offers a pass-through interface to the TreasuryDirect website, says it has sold $15 million in I-bonds so far, but 44% of those users have purchased less than $1,000. Only 27% contributed the full $10,000 allowed, says Yotta co-founder Adam Moelis.

  • If you’re one of those who have already maxed out their $10,000 individual allowance, you’ll have to wait until January 1, 2023 to purchase more for yourself. You’ll get six months of the rate that starts in November and then the next advertised rate after that. If you want to buy more than that, you can offer up to $10,000 per person and start the countdown, even if you don’t deliver the gift, says Harry Sit, who runs the Finance Buff blog. The TreasuryDirect website has a ‘gift box‘ where your gift purchases stay until you deliver them. Note that to receive the gift, the recipient must have an account and must not have exceeded their $10,000 cap for the year. Husbands and wives can give each other gifts.

  • One last note: don’t forget that you have I-bonds. Since you must buy I-bonds on an individual account, you must always ensure that you incorporate your holdings into your overall financial plan. Be sure to name a beneficiary and let your loved ones know the account information, should anything happen to you. It’s all part of planning for the future. “It’s a problem with older people,” says Enna. “They might forget, and if they don’t tell anyone, you’ll never know. I have a 94 year old mother-in-law who owns I-bonds and has used them for many years. We know her ID, we know what’s there, and how to disperse it when she dies.

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