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PROs and CONs of I Bonds

The big question of the year is what to do with your money in these uncertain times? With banks paying next to nothing on the cash in your accounts and the stock market dropping, where can you make a decent return while keeping your money protected?  Have you heard of an I Bond? Otherwise known […]

The big question of the year is what to do with your money in these uncertain times? With banks paying next to nothing on the cash in your accounts and the stock market dropping, where can you make a decent return while keeping your money protected? 

Have you heard of an I Bond? Otherwise known as an Inflation Linked Savings Bond (it’s a mouthful, so we will stick with I Bond). It’s probably the least interesting investment people make. As it explains in the name, the bonds were meant to help your money keep up with inflation. 

This year, I Bonds are stepping up the game with these high inflation rates, so they’re worth considering. Investing in an I Bond now means you are guaranteed a 9.62% return without the risk of the uncertainty of investing in a stock market! You’re probably wondering why you haven’t heard of this before and it’s probably because in the past the interest averaged around 3% so it wasn’t a big deal. 

While your money sits in the bank, the average return is 0.07% which is close to nothing and all your money is losing an incredible amount of value. You would be making over 100 times more investing your money into an I Bond if they keep the rates around what they have today than keeping it in your bank or savings. Not convinced? Learn more about I Bonds so you can learn about their LOW risk and HIGH reward, which is RARE.

Key Rules

Before we get into the more complex information of an I Bond, we need to take a look at the key rules when investing in them. So each person is allowed to buy a max of $10,000 in I Bonds with an additional $15,000 if you use your tax returns towards it. But not everyone has that kind of money, so you can actually invest with a minimum of $25.

Before you put any of your cash, you have to understand that the money has to stay in the account for at least 1 year. If you pull out your money before keeping it in for at least 5 years, you will lose the interest of the last three months as a penalty. It sounds like some harsh rules, but when you think about it, you don’t have the risk of losing really any money. And since it is tied to inflation, the rates are re-accessed every 6 months (May and November, but even if inflation lowers again, you’ll still be making a return. Another thing is that you will lock in your rate from when you bought it and keep that rate for the next 6 months even if it changes.

PROs and CONs

Like any other investment, you have to check out the pros and the cons of an I Bond before giving them your cash. We’ve already discussed a good number of positive reasons to put your money into I Bonds. But we still need to go into what can go wrong with it.

List of PROs

  • HIGH reward and LOW risk: I Bonds currently have an interest rate of 9.62%, which allows you to make money even if the recession gets worse. It’s better to have it build a return than to sit in your bank account and lose value. When it comes to investing in the stock market, you have a risk of losing money, which isn’t the case with I Bonds. 
  • Great way to invest when you have short-term goals: If you have some goals like paying a down payment for a house within the next few years, it’s perfect to invest in I Bonds because you don’t have to keep it in the account for an outrageously long time. You also don’t have to risk the money being lost like you would when investing in the stock market.
  • You won’t lose value: You won’t ever lose money investing with I Bonds because they are backed by the credit of the United States government.

List of Cons

  • Potential to earn more in stocks: While your money can still make a return in I Bonds it won’t get as near of a return as a stock market could do even after recovering from a bear market, which is what we are in now. The Nasdaq shows the average rate of return after bear markets and even after one year from recovering from the bear market, you could make about 22% in return.
  • 12-month minimum: Like we mentioned in the beginning, with I Bonds you can’t pull out your money for at least a year. So if you were looking to save for a very short term and use your money, you won’t be able to access that money until that year is up.
  • Can’t purchase at your investment firm: You may already have an investment firm that you do all your purchasing from, but you can’t do that with I Bonds. You have to go directly to the treasury website (TreasuryDirect.gov) to do the purchasing and managing. That just opens another tab to keep track of.

Conclusion

So now that you have learned the basics of I Bonds, you can see that it is a great investment even after reading the cons. I Bonds are worth leaving your money in because all the benefits just outweigh your risks. If you can handle leaving your money in for at least a year, you’ll be greatly rewarded when you pull that money out. There’s no way for you to lose money in doing so.

Do you want a breakdown of the math or to want to know how to get started investing in I Bonds? Let me know down below! Or maybe you are having a tough time deciding whether or not to put your money into I Bonds or putting it into investing in the stock market. Either way, I am here to help you better understand.

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