The U.S. Treasury's inflation-protected I Bond is a no-brainer alternative to holding long-term savings in the bank.
Did you know there's a relatively low-risk investment that can earn you a near 7% annualized return right now?
With inflation recently at a 40-year high, there's a Treasury bond that pays an inflation-adjusted rate of nearly 7% -- the Series I Savings Bond.
While it may not be the right choice for every investor, if you're setting aside cash in a savings account on a regular basis, you might consider putting that money into I Bonds instead.
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I Bonds are like inflation insurance
If you're planning to hold cash for the foreseeable future, I Bonds are likely a great place to park it. Series I Treasury bonds pay interest that is based on the combination of a fixed interest rate and an inflation-adjusted rate. Every six months, the variable rate adjusts to reflect the Consumer Price Index level.
Today, the fixed-rate component for I Bonds is 0.4% while the inflation-adjusted component will be 6.89% through April 30.
This means if you buy an I Bond today, you'll be guaranteed a fixed 0.4% interest rate for the life of the bond (30 years), and an inflation-adjusted rate of nearly 7% until the end of April. It's certainly possible that the variable rate could decline beginning in May if the inflation rate heads downward, but even the fixed rate alone is higher than you'd receive from a traditional savings account.
In fact, the average interest rate for savings accounts today in the U.S. is only 0.21%, according to the FDIC.
So, if you buy an I Bond right now, you're guaranteed a better rate of return than you'd receive if you left that money in your savings account. Plus there's the added benefit of inflation insulation.
The catch with I Bonds
The biggest drawback to I Bonds is you only receive the interest payments when you cash out your bonds -- and the soonest you can do that is 12 months after you initially purchase them. Also, if you cash out before five years, you'll incur a penalty equivalent to the last three months of interest payments.
So, if you might need that money in the near future, you probably shouldn't buy I Bonds. But if you're comfortable locking up those funds for more than 12 months, there's little downside to investing in them.
Are I Bonds right for you?
The main advantage of I Bonds lies in their capacity to hold cash for long periods of time without risking a loss of purchasing power. For example, they might be an excellent savings vehicle if you're saving up to buy a home or make some other large purchase in the next several years.
The upside is your money is sheltered from inflation. The downside is your money is locked up for at least 12 months. However, if you invested those funds in the stock market, you could potentially earn a much higher rate of return.
I Bonds aren't a short-term hack
I Bonds have become increasingly popular in this period of high inflation, but it's important to understand they aren't a short-term inflation insulator.
You're obligated to hold them for at least 12 months, and even then, you'd likely be better off investing in the stock market, which has historically risen by an average of around 10% per year.
But if you're saving up for a large purchase, I Bonds do offer an attractive alternative to a traditional savings account.
FAQs
Did you know there's a relatively low-risk investment that can earn you a near 7% annualized return right now? With inflation recently at a 40-year high, there's a Treasury bond that pays an inflation-adjusted rate of nearly 7% -- the Series I Savings Bond.
What is a 7 percent return on investment? ›
A 7% yield refers to the annual return on your investment paid back to you in cash, expressed as a percentage of your initial investment. For example, if you invest $10,000 in a security that yields 7%, you can expect to earn $700 in returns over the course of a year.
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We focus the most on the business fundamentals of the companies in which we invest, rather than on their stocks' short-term price changes. When we recommend a stock to any user of our premium subscription services, we are recommending that you buy and hold the stock for a minimum of 5 years.
Where can I make 7% on my money? ›
As of September 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking account: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.
Is a 7% return realistic? ›
Even the 10% estimate doesn't include inflation, which has averaged about 3% a year, further reducing the historical return closer to 7%. Tack on things like fees and taxes, and even 7% is probably a relatively high long-term return assumption for a portfolio, especially based on market forecasts today.
What investment pays 7 percent interest? ›
Certificates of Deposit (CDs)
If you want to lock in a high APY while rates are favorable, you could consider a 7% interest CD. While these can be hard to find too, the best CD rates are often higher than the best savings rates. Several credit unions offer CD rates close to 6.00% APY.
What is a balanced portfolio for a 65 year old? ›
In your later years, a conservative allocation of 30% cash, 20% bonds and 50% stocks might be appropriate. Diversified portfolios typically include a core of at least 50% stocks in part because equities alone offer the potential to generate long-term returns exceeding inflation.
Is 8% return on investment realistic? ›
As a result, the 8% rate of return is a surface-level indicator of the investment's performance. In an environment with high inflation and taxes, your real return could be next to nothing. That said, investments can still be an excellent source of retirement income.
How can I double $5000 dollars? ›
How can I double $5000 dollars? One way to potentially double $5,000 is by investing it in a 401(k) account, especially if your employer matches your contributions. For example, if you invest $5,000 and your employer offers to fully match at 100%, you could start with a total of $10,000 in your account.
How much money do I need to invest to make $3,000 a month? ›
Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.
Yes, the 10–10–10 rule is highly applicable to personal finance decisions. By examining the short-term, mid-term, and long-term effects of financial choices, individuals can make informed decisions that align with their financial goals and aspirations, thereby fostering financial well-being and stability.
What is the foolish four investment strategy? ›
The Foolish Four is a simple and proven system based on picking beaten-down Dow giants that are most likely to rebound. This strategy has averaged a return of 22 percent over the past 25 years.
What are the 4 golden rules investing? ›
They are: (1) Use specialist products; (2) Diversify manager research risk; (3) Diversify investment styles; and, (4) Rebalance to asset mix policy. All boringly straightforward and logical.
What is David Abrams investment strategy? ›
His firm, established in 1999 and based in Boston, prides itself on an opportunistic approach, focusing on long-term investments in a concentrated portfolio that spans various asset classes including stocks, debt, and distressed assets.
Where can I get a guaranteed 5 percent return? ›
High-yield savings accounts
Another place you could park money and earn 5% or more, without risking your principal within applicable insurance limits, is a high-yield savings account. High-yield savings accounts can also let you move money in and out of your account more freely than CDs do.
Where can I return Amazon returns? ›
Start your return in our Online Return Center. If an item is eligible for return to an Amazon store, you will have the option to select Amazon Store Dropoff. If an item is eligible for return but cannot be returned to an Amazon store, you will be presented with other return options.
What bonds have a 10 percent return? ›
Junk Bonds
Junk bonds are high-yield corporate bonds issued by companies with lower credit ratings. Because of their higher risk of default, they offer higher interest rates, potentially providing returns over 10%. During economic growth periods, the risk of default decreases, making junk bonds particularly attractive.
Is 7 a good rate of return? ›
Is a 7% Return on 401(k) Good? A 7% return on a 401(k) falls within the average rate of return for most 401(k)s, which is between 5% and 8%.
