I have written about SoFi, and how their checking is offering 1.25% interest, soon to be 1.75%. This is far lower than another longer term savings product. The US Treasury is now offering I Series Savings Bonds with a six month interest rate of 9.62%. These bonds have a fixed interest portion and a variable portion that moves with the inflation rate calculated from the CPI-U inflation index. With inflation going so high, the variable rate moved much higher.
You can see the Treasury Direct link for more details.
Some highlights from that page.
- You can buy I bonds at that rate through October 2022.
- I bonds have an annual interest rate derived from a fixed rate and a semiannual inflation rate.
- Interest, if any, is added to the bond monthly and is paid when you cash the bond.
- Minimum term of ownership: 1 year
- Interest-earning period: 30 years or until you cash them, whichever comes first
- Early redemption penalties:
- Before 5 years, forfeit interest from the previous 3 months
- After 5 years, no penalty
- Savings bonds are exempt from taxation by any State or political subdivision of a State, except for estate or inheritance taxes.
- Interest earnings are subject to Federal income tax.
- Interest earnings may be excluded from Federal income tax when used to finance education
One thing I like is that owning I bonds enables compound interest. Let me explain.
Suppose you buy $1000 of I bonds at 9.62%. In six months, you will earn $48.1 of interest ($1000 * 9.62% * (6/12)). The government will take the interest and add it back to your principal. Your new principal will be $1048.10. The new interest in October for the next six months is 7% (example, I can’t predict the future).
$1048.10 will earn $36.68 in interest over six months ($1048.10 * 7% * (6/12)). That $36.68 is added back to your principal, leaving you with $1084.78, for an overall annual return of 8.45%. You keep going, up until 30 years. We have spoken about the Rule of 72 to approximate how long it takes for your money to double. You take 72 and divide it by your compounded interest rate. With 8% compound interest, your money doubles in 9 years. In a low interest rate, high inflation environment, where rates are rising and paper assets crashing, a high, safe return is not the worst thing in the world.
Note: After some time, if you don’t need the interest, use it to help Ukraine’s people and donate to pro-democracy politicians, devoted to helping people improve their lives and the peaceful transition of power. Democracy and freedom are under assault worldwide.
Thanks for reading.
With peace, love, and hope, except for the scum who don’t deserve it,
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