If you have a balance on a credit card or an adjustable rate mortgage, you might be noticing changes in your payments. Higher interest rates are starting to ripple through the personal finance landscape, and it doesn’t look like that trend will change anytime soon.
The Federal Reserve has indicated it plans to keep raising short-term interest rates to help manage inflation, which is at its highest level in 40 years. You’re likely seeing the effects of inflation when buying gas or groceries, and you’ll notice it if you are shopping for a new or used car.
The Federal Reserve’s job is to control inflation. By raising interest rates, the Fed hopes to slow spending, bringing down consumer prices.
Time will tell whether higher interest rates will prompt us to consider changes to your portfolio. Remember, your overall strategy considers that there will be transition periods in the economy.
In the meantime, you may want to look at I Bonds, which are issued by the U.S. government and earn a fixed interest rate plus a variable interest inflation rate that’s adjusted twice a year. I Bonds have certain purchase limits, restrictions, and tax treatments, so they generally play a limited role in your financial picture.
US Series I Bonds currently paying 9.62%!!!
As a Fiduciary, we put our client's best interest first. Outside of our management (We can't buy these for clients), you may want to consider buying US Series I Savings Bonds, they are currently paying 9.62%, but that is a variable rate and there are pros/cons... Check out the treasurydirect.gov website:
- Safe (backed by US government)
- Interest rate can't go below zero and the redemption value can't decline.
- State and Local Tax free
- Tax deferred (and tax-free if used for kid's college tuition)
- Right now, I bonds offer an initial 9.62% rate which is significantly higher than most CDs. The 9.62% rate is variable and resets twice a year.
- Can only purchase $10k per year per individual, 20k per couple. There are some exceptions to increase this amount.
- Must be held for 1 year. Illiquid for 1st year and withdrawals <5 years lose 3 months of interest, but you may not mind losing a quarter of 9.612% in this low rate environment.
- The current fixed rate is 0%, but the variable rate is 9.62%, so you may want to get out when the variable rate drops back down.
- The variable rate resets every 6 months, so it could be reduced in 6 months, but it also may rise.
- The website is ancient and clunky! Do not hit the back button! Do not mess up any typing! It can be a HUGE hassle if you have any errors upon buying! Also, we have been hearing that the website is crashing. Be patient!
Why hasn't there been more chatter about I Bonds?
- Probably because no one gets paid when you buy them except for you!
The information above is a good example of being a Fiduciary Investment Advisor. We put our client's best interests first! We'd be happy to discuss I Bonds in more detail. They aren't a great fit for everyone. This is not financial advice.
If you have any questions about inflation or interest rates, please reach out. We’re always here to help put things into perspective.
CRA Investment Committee
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