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Is Now a Good Time to Redeem Your I Bond?

Planning Matters Radio / Peter Richon
The Truth Network Radio
December 21, 2024 9:00 am

Is Now a Good Time to Redeem Your I Bond?

Planning Matters Radio / Peter Richon

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December 21, 2024 9:00 am

Back in 2022 when inflation was through the roof, we were able to buy I Bonds, or inflation bonds, with a 9.6% return! Now though, the rate of return is just over 3%. In this video, Peter with Richon Planning and Erin Kennedy discuss whether investors should redeem those I Bonds and invest in something else.

The short answer is yes. There are several places you can put your money right now that are considered "low risk" and still have a higher rate of return than 3%. That being said, if you sell your I Bond before its 5-year maturity date, you will lose the last 3 months' interest.

If you'd like to crunch the numbers with Peter, and discuss alternate investments, please call (919) 300 - 5886 or visit www.RichonPlanning.com

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Peter, very good to see you.

Welcome back, everyone. The big question today, is now a good time to redeem your I bonds? Back in 2022, when inflation was through the roof, we were able to buy I bonds with a rate of return at 9.6%. Now, though, the rate of return is just over 3%, which has a lot of investors wondering if now is the time we should redeem them and be investing in something else. So the first consideration, I'm guessing, Peter, is the difference between the current fixed rate and the fixed rate when you bought them. So again, let's assume that we bought back when they were at 9.6%. Is today the day I should be redeeming them? Well, and I feel like I've been asking this question throughout several of our recent videos, Aaron, but did your advisor tell you this?

And if not, what else could you be missing? Did your advisor call you back in 2022 and say, hey, guess what? The government, the US government with the full faith and credit of the US government, basically, the standard of safety is offering you a guaranteed 9.62% interest rate. And if not, why didn't they call and tell you that? I sent that information out to all of my clients because it was a fantastic interest rate. You had to purchase these directly through the government, through TreasuryDirect.gov, which is not the easiest website to navigate, but you could get a guaranteed 9.62% rate from the US government. Now, whenever they give us something good, they limit how much we can take advantage of it. So you could only put in up to $10,000 per year per person or the money that you get back from a tax return.

So if you were getting a substantial tax return, that may be one of the good things that you could have done with that money. But in a household with maybe a married couple, that's like $40,000 during this time span that you could have gotten in and been guaranteed a rate of 9.62. However, that interest rate changes with inflation and is assessed every six months. So now that they're saying, hey, inflation has come down, we've gotten inflation under control, it's only paying out about 3.1%. And that is actually a combination of a fixed rate and the inflation rate, the combo rate now is 3.1%. So yes, Aaron, to answer your question, I do think that it is time to get out of those I bonds because we can go and find other alternatives now and lock in a higher rate for the foreseeable future, maybe the next three to five years. I'm still seeing where we can lock in rates at 4.75 or five. And I hate talking about rates in something like this because they can change. But as of right now, as of the recording of this video, we can still get three to five year guaranteed rates locked in above what the I bonds are paying. And so why not lock that in for the next three to five years if we can get significantly more on safe, protected money?

We're going to talk more about that in a second. But first, I want to talk through the penalties of an early withdrawal because I bonds fully mature after five years. So what am I losing if I redeem them early? Yeah. And you can't until the one year mark.

Correct. But after one year and one day, you can redeem them and you would lose three months worth of the interest that you would have otherwise received. So it's not that big of a penalty when you're talking about they're only paying three point one one percent right now is not a huge penalty. And if you log into your account on Treasury direct dot gov, they actually give you the amount and show you what you would be able to surrender that day, not including that penalty that they would take back. So where we're talking about only three months worth of interest, but we could improve the interest rate for several years by a point or a percent or maybe more.

I do think that it is worth it to go ahead and surrender that. Think of it like a teeter totter, right? Where we got into these bonds, the interest rate there was much higher than what we could get at a bank. But now that teeter totter has shifted and what we could get at a bank or an insurance company in CDs or in a fixed annuity or in a money market is higher than what the I bond is paying. So when that teeter totter shifts, that's probably time to get out where you can get the same or a better interest rate, either more liquid or locked in for a longer period of time.

That's the time to consider getting out of it. But you will lose the three months worth of interest. And if you've had these hanging around since twenty twenty two and you log into your account, you actually see the amount already calculated with that penalty taken out. In that case, Peter, does it matter what month I sell them? I mean, theoretically, the interest rate changes on a six month basis and you've got a rolling six months based on the time that you got in. But I think for my advice on now is the time to look at surrendering them because better interest rates are available. If better interest rates are available, that is the time to do it.

I would not necessarily say, hey, no, wait around for another couple of months because that penalty is also a rolling penalty up until the five year mark. You're still going to get dinged for three months worth of interest. OK, so again, brass tacks, Peter, let's say that I invested ten thousand dollars back in twenty twenty two. Where can I put that money now? That's still considered a safe investment with an almost 10 percent rate of return. Yeah, you can you can shop high yield savings accounts. You can look at CDs, three, six, twelve month CDs.

You can look at money market accounts. You can look at fixed annuities two, three, five years. All of these right now, all of those are on the safer end of the spectrum. Some of them have certain guarantees, whether it's bank guarantees, whether it's the claims paying ability of the issuing insurance company, whether it's the pricing of a money market.

All of them have a standard of safety that are involved with them behind the scenes. And all of those right now are offering better interest rates than what the I bond is paying. So I think all of those are reasonable alternatives for somebody who wanted safety and a a decent interest rate. And for a while, there was really nothing that I could give somebody that guaranteed a higher interest rate than what an I bond was paying back when they were paying nine point sixty two percent. But because inflation has come down, so has the interest rates with these inflation protected bonds.

That's what the I is for. These are inflation bonds. So has that interest rate. And therefore now we've got better alternatives paying more, whether you want liquidity and safety or you're comfortable sacrificing some of the liquidity and you want safety for some growth. Those are available in the conservative end of the spectrum, in CDs, in money markets, in high yield savings accounts or fixed fixed annuity products that you can range whether you want it completely liquid or that you're willing to dedicate the money for a period of time.

And the interest rate is going to reflect according. All right. Well, Peter, if somebody wants to talk through those options with you, what's the best way to reach you? Give me a call.

Nine one nine three zero zero five eight eight six nine one nine three zero zero five eight eight six. You can also go online to rich on planning dot com is what it looks like. It's Roshan planning dot com. You can email me Peter at Roshan planning dot com. It's not just your finance, it's your future.

Each dollar needs to be working as hard as it can for you. All right, Peter, thank you. Thank you.

Hey, folks, Peter Roshan here with Roshan planning. So glad that you are enjoying the podcast. Planning matters radio. You know, one of the tools that we've put out there that people really seem to appreciate and really are our finding of value is at nine one nine retired dot com. It is your retirement tax bill calculator. If you've got any kind of retirement account, your tax deferred 401K or IRA, this is the Web site.

This is the resource where you can go. You can plug in your own numbers, your information. You can slide the the the tool calculator up and down for your tax rate or your amount of savings and see what your tax bill is likely to be if you default and defer to the IRS plan versus what you could potentially bring that tax bill down to. A lot of times it is a very significant savings. So if you have not yet go to the Web site nine one nine retired dot com, run your numbers on the retirement tax bill calculator.

This has been planning matters radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment tax or legal advice from an independent professional adviser. Any investments and or investment strategies mentioned involve risk, including the possible loss of principal advisory services offered through Brooke's own capital management or registered investment adviser. Produciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission which may result in a conflict of interest regarding compensation.
Whisper: medium.en / 2024-12-21 10:21:00 / 2024-12-21 10:25:03 / 4

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