3 Reasons I Don’t Invest In I Bonds Right Now, Despite The Rising Prices
- Friends, family, and experts tell me that it’s time to invest in I bonds.
- It is a good choice because it is stable and safe and the rate is high now.
- However, it is finite and inflexible, and the variable rate interests me.
A few months ago, a friend I often turn to for financial advice called me to tell me I should invest in something called I Bonds.
An I Bond is a bond issued by the US Treasury that pays you both a fixed rate and an inflation-adjusted rate. Currently, I Bonds yield higher returns (9.2%) than some high-performing stocks and significantly lower risk, given that they are government-backed bonds. In addition, the return is much higher than other low-risk options, such as a high-return savings account or CD.
After my friend alerted me to take advantage of the 9.2% locked rate that will be available until October 2022, when the interest rate changes (it changes twice a year), other people in my life gave me the same advice, from family members to financial advisors.
But the more I researched I Bonds, and looked at my financial goals, the more I realized I didn’t want to go that route with my money. Here are the reasons why I said no to investing in I Bonds even though all my friends did.
1. There is a limit to how much you can buy
One investment mistake I’ve felt I’ve made over the years is investing a small amount of cash in many different projects, stocks, or funds. I want to limit the amount of things I put my money in and put more money into each of these assets.
So when I found out that anyone could only buy up to $10,000 of I Bonds a year, plus another $5,000 with a tax refund, I didn’t feel it was worth it.
I found that this maximum is the limit. Since I don’t want to spread out small increments of money between multiple places, the fact that I can’t invest more money each year made me stop and think if this was good for my financial plan.
2. There is a lack of flexibility
Just like with most bonds or CDs, the money you put into I Bonds must be kept there for at least 12 months. Then, any I Bonds redeemed in less than 5 years are penalized with the last three months of interest earned. The full term of the I Bond is 30 years, which makes this a good long-term investment that you can contribute each year.
Since I already have a SEP IRA and contribute every month as my main source of long-term financial support, adding I Bonds to my portfolio doesn’t make sense, especially because I didn’t want to worry about paying any penalties if I decided it wasn’t the right move for me to take right now. .
3. The rate varies according to inflation
Since the I Bond rate is based on a fixed rate and inflation rate, there is no guarantee that your payout amount will remain as high as it is now in the future. As the rate of inflation decreases, the rate of I Bonds will also decrease.
So, while it was tempting to buy I Bonds at the current high rate of 9.2%, next year that rate might go down a bit and my money will be locked into I Bonds for the next five years (or I would have to pay a penalty for withdrawing).
The variable rate eventually prompted me to pass the money in I Bonds, even though several other people I know decided to do so.