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Marc Cuniberti: A gift from the US government

Marc Cuniberti

With the stock market in free fall, and most bonds (IOU’s from businesses and government entities) following suit, investors are looking for alternatives. Cash is safe, but holding cash in an inflationary environment will result in a loss of purchasing power.

But there is an investment that offers both inflation protection and the 100% safety of U.S. government backing.

Series I bonds, offered by the U.S. Treasury Department, are currently yielding 9.62%. The interest rate paid on these bonds increases as inflation rises, which is why the yield has skyrocketed.

An I bond earns interest two ways: a fixed rate and a variable rate. The variable rate is adjusted every six months. Note that your rate can also adjust downward or upwards if the underlying interest rates change. The bonds duration is 30 years, but an investor can cash them in at any time after the first 12 months.

In the first six months, you’ll get the prevailing interest rate at that time. Then your bond will adjust to whatever new rate is announced in October and adjust every six months thereafter.

If you need cash and turn in the bond before it’s at least five years old, you’ll pay a penalty of the last three months’ worth of interest, but if you do the math, it’s only a small portion of the total amount.

Interest on the bonds is also exempt from state and local taxes, but you will still have to pay federal taxes on any gains. There are also special tax considerations if you use the proceeds for higher education purposes.

To buy I bonds, you must be:

• A U.S. citizen, even if you live abroad

• A U.S. resident

• A civilian employee of the U.S. government, regardless of where you live

Trusts and estates can also purchase I bonds in some cases, but corporations, partnerships and other organizations may not.

You need to set up a Treasury Direct account at Treasurydirect.gov., and have a taxpayer identification number (such as a Social Security number), a U.S. address, a checking or savings account, an email address and a web browser that supports 128-bit encryption.

Although children under age 18 cannot set up a TreasuryDirect account, a parent or other adult custodian may open an account for the minor which is then linked to their own.

Once you have an account, TreasuryDirect will email your account number, which you can then use to log in to your account. Select “BuyDirect” and then “Series I bonds,” then select the bank account to use and the date you’d like to make the purchase.

The limits per calendar year are:

• $10,000 in electronic I bonds ($20,000 for married couples)

• $5,000 in paper I bonds with your federal income tax refund

You can buy more every year and even set it up to automatically repeat the purchase each year.

You can read more about I bonds or open an account at Treasurydirect.gov.

At the current yield of 9.62%, and the Feds expected to raise rates at least a few times in the coming months to curb inflation, an I bond or two might be just the ticket to help combat today’s rising inflation with the added feature of U.S. government backing.

“Watching the markets so you don’t have to.”

This is not a recommendation to buy or sell any securities. This article expresses the opinion of Marc Cuniberti and may not reflect the opinions of this news media, its staff, members or underwriters, nor any bank, brokerage firm or RIA and is not meant as investment advice. Mr. Cuniberti holds a degree in Economics with honors, 1979, from SDSU. His phone number is 530-559 -1214. Voted best financial advisor in Nevada County in March 2022

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