I Bonds currently pay 9.62 percent but that is ending very soon. Certified Financial Planner Jeremy Keil joins us to explain what I Bonds are, why the interest rate is expiring and how to decide whether they are right for you.
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Ibond Form - Form 8888
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Full Transcript:
Bobbi Rebell:
Hey, grown up friends. A big thank you to so many of you that have already bought my new book, Launching Financial Grownups: Live Your Richest Life by helping Your Almost Adult Kids Become Everyday Money Smart. This book was not easy to write because I had to get honest with myself about what was working with my teen and young adult kids and what was not working, and I also had to be prepared to share it with all of you. So first of all, thank you for your support and your wonderful responses to it. There's definitely some things in there that you may not have been expecting to hear.
Bobbi Rebell:
By the way, I got a lot of help from my money expert friends and also financial therapists and parenting experts. I am really happy with how Launching Financial Grownups came out even though it really was hard to be, like I said, that honest. And it was a lot of work, but I really love doing it and I'm really happy with how it came out. On that note, if you have not already, please pick up a copy of Launching Financial Grownups today. After you do, please share it on social media. Please leave a review on Amazon. Those reviews are super important because the algorithm picks up on them and that can make the book a lot more visible to more people. So I truly appreciate it and I really also appreciate all of your support.
Jeremy Keil:
9.62. A great interest rate. You cannot find that anywhere. You can't find that in 12-month CDs. You can't find that in savings accounts. And, of course, there's a few different quirks, again, with the I bonds we'll get into. But the reason why rates are so high is because it's just based on inflation. And inflation, unfortunately, has been high, but thankfully you can get some good value out of what's going on.
Bobbi Rebell:
You're listening to Money Tips for Financial Grownups with me, Certified Financial Planner Bobbi Rebell, author of Launching Financial Grownups, because you know what? Grown up life is really hard, but together we got this.
Bobbi Rebell:
Let's talk about savings bonds. Savings bonds used to sound really boring. In fact, they were really boring. The returns were kind of blah, especially compared to other opportunities that were out there. But things are changing. Between the bear market and the rise of inflation, something pretty interesting is happening with what are called I bonds. I as in inflation. Let me say though from the get go that this episode is, as is always the case frankly, for information and hopefully entertainment only. I'm not advising anyone to make any specific investments.
Bobbi Rebell:
That's going to depend on your personal situation and your goals, but you should at least know about different investments, in this case, I bonds, in order to make that decision. So my guest this week is Jeremy Keil. He is a Wisconsin-based financial planner and also the host of the Retirement Revealed Podcast. In our interview, Jeremy and I discuss what I bonds are, how they work, how you can actually buy I bonds. It's not where you think or where you usually get most of your investments. We also talk about how much you can buy. There are limitations and then there's little loopholes. And, most of all, why they are currently paying so much more than other investments. Stay tuned to the end because we also get into some quirks that you really need to know if you are considering putting some money into I bonds. And also a very important deadline. Here is Jeremy Keil.
Bobbi Rebell:
Jeremy Keil, you're a financial grownup. Welcome to the podcast.
Jeremy Keil:
Thanks for having me on, Bobbi.
Bobbi Rebell:
You are a Certified Financial Planner. You have your own practice out in Wisconsin and you are also the host of the podcast Retirement Revealed. I asked you to come on because you focused, recently especially, on something that I am incredibly curious about and I think our listeners really need to know about, and that is something called I bonds. So it's a letter I and then the word bonds. Explain what exactly are I bonds and why do we care, especially at this moment in time?
Jeremy Keil:
You got it. Well, you right might remember back in the day growing up, your grandparents probably gave you paper savings bonds for a gift. Christmas, birthdays, things like that. I bonds are savings bonds. They're U.S. government bonds. They're no longer on paper. And the I part means it's tied to inflation. And so no one really cared or knew about these until about the middle of 2021 when all of a sudden the rates started getting pretty good.
Jeremy Keil:
Middle of 2021, they were 3.5% and your average bank account was 0.01. And so that was a pretty good deal. Then they went to 7% and now, through the end of October, they're at 9.62%. So if you buy an I bond on October 30 or before that, then the rate will be 9.62%. And I threw in a little funky date there, October 30, because when you buy an I bond, you can only do it through treasurydirect.gov. You got to go direct to the U.S. government. They make it effective the next day. And so if you're on Halloween listening to this, have some fun, but don't bother buying an I bond because October 30 is the last day for the 9.62%.
Bobbi Rebell:
Okay, we want to talk about why these rates are so much higher than other investment options, the risk involved in them, and then also what's going on on October 30. Let's start with, first of all, why are the rates so much higher? What's going on? Is there some kind of disconnect? Because, as we record this, which is October 6 of 2022, we're recording this, the stock market has been kind of a disaster the last few months. People have been losing quite a bit of money depending on where you're invested. And these seem very safe and kind of a no-brainer. How do they work? Why is the interest rate so much higher and why has it jumped so much recently?
Jeremy Keil:
Yeah, so I'll call it a quirk, not a disconnect. One reason why the stock market's down is because usually the stock market drops when there's a sudden quick inflation. And that's what happened. All of a sudden, inflation just kicked up. It was somewhat a surprise to most everybody. And yet the I bonds, I stands for inflation, they are tied directly to the inflation rate. And so when you see inflation high, that initially usually historically kicks down the stock market, but it's also tied a hundred percent. It kicks up the rates in these I bonds. And so it's also interesting too because usually in the newspapers and the news media, you'll see the 12-month inflation rate. And most of the time in the last year you've seen inflation's at around 8%, which is a pretty high rate. But the way I bonds are figured out is they take the last six months of inflation and they double it.
Jeremy Keil:
You normally see a 12-month rate, but they've looked at the last six months and doubled it. And so back in April of 2022, they had the March numbers and it came out that inflation was 8, 8.5%, whatever it was. But it was kind of a ramping up. The last six months of that 12-months number was really high and that happened to have been the number they use for inflation bonds, the I bonds on there. So 9.62% is the rate for anyone that bought in May of 2022 all the way through the end of October 2022. And that's interesting. 9.62, a great interest rate. You cannot find that anywhere. You can't find that in 12-month CDs, you can't find that in saving accounts. And, of course, there's a few different quirks again with the I bonds we'll get into. But the reason why rates are so high is because it's just based on inflation. And inflation, unfortunately, has been high, but thankfully you can get some good value out of what's going on by looking into I bonds.
Bobbi Rebell:
So when you're buying an I bond, what kind of account should you put it in? Is it a taxable asset where you should maybe put it in something that's a retirement fund or is it something where you're going to pay tax on? Where is the best place to put these I bonds if you buy them?
Jeremy Keil:
You got it. So you used a term taxable. I like to use the term non-IRA. It's just not special. It's just like your bank money. You cannot buy an I Bond inside of a Roth IRA. You cannot buy the I bond inside of your traditional 401k, anything like that. It's basically a replacement for your bank money. If you thought, "I don't need this bank money for the next 12 months or so", then you can put that money into an I bond and think of that 12-month number or 12-month time because you absolutely cannot, no way, get your money out of I bonds for the first 12 months. That's a rule. No matter how hard you try, you're not getting the money out. So the only money you should put into I bonds is money that you expect to not use for at least 12 months because you can't get it out.
Jeremy Keil:
And if you take it out in the first five years, you lose the prior three months interest as a penalty, which sounds big, sounds bad, but when you run the numbers, even after losing that last three months of interest, it still comes out to a pretty good rate. And then that gives us kind of a first tip with I bonds is looking at more a 15-month purchase at the minimum. Because if you really like the interest for the first year and you don't like the interest a year later, well, you want to wait about three months, then cash out your I bond because then you're cashing out and losing the bad interest and holding on to the good interest that you got the first 12 months.
Bobbi Rebell:
But you can't buy unlimited amounts of this. There are some caps to how much you can actually buy and then there's sort of a loophole with respect to taxes, to your tax refund.
Jeremy Keil:
A bit of that. So the maximum purchase is $10,000 per person per year. So a lot of people say, "Oh, that's not terribly too much." Most Americans don't have $10,000 in the bank. And so most Americans can benefit by purchasing I bonds and not actually running up against that $10,000 limit. Folks that have more than that and want to buy more than that, well, you might be married. That's 10,000 for you, that's 10,000 for your spouse. You might want to put some in the name of your kids. You might have a revocable living trust because you've done some estate planning and your trust can buy the $10,000 worth of I bonds.
Jeremy Keil:
And you might have an LLC. Perhaps you have a business and that business can buy the $10,000 worth of I bonds. So there's a lot of, I wouldn't say ways around it, but just knowing the rules that it's per person, per entity, I'd say most couples might be able to get 20,000, maybe even 30,000. Perhaps they could get more depending on what their kid situation is or their business situation is. And, hey, if you max out in one year, wait until January. It's per calendar year. You can get another. It just resets. You get another $10,000 per person or entity once you hit January.
Bobbi Rebell:
Now you talked about October 30 and that's because it's the end of the month and you need 24 hours. You need to buy it one day before the end of the month. What exactly is going to happen in November? I mean, how do we know it's not going to go up and get even better because it feels like inflation is still pretty bad right now.
Jeremy Keil:
Yeah, you get it. Inflation is bad on a 12-month basis. That's what you normally see. But the I bond rate is based on the prior six months. So the November rate will be based on what happened between March and September. And so far we're about a week away from that number release. So October 13, if you're listening October 13 or later, I'll have that posted right on our podcast website, which is retirement-revealed.com. We're doing the math every month on what the projection will be.
Jeremy Keil:
And, finally, October 13, we'll have the full six months that's on there. So we'll know for sure. But right now it's trending the last two months of inflation have actually gone down. And so you see the numbers that say inflation's 8% above. It's actually reporting 10 months of really bad inflation and the last two months, inflation has actually gone down. We'll see if it happens again for a third month straight. It's just kind of a quirk of how people report inflation with 12-month numbers. I bonds are based on six month numbers and if you really dig into it month by month, which I like to do, you'll notice that the last two months, inflation's actually gone down
Bobbi Rebell:
When you're actually going to buy an I bond, whether it's for money or also you can do it right with a tax refund money as well, right? That's an extra thing?
Jeremy Keil:
Yes. So that's an extra thing. So you could get, on top of the 10,000 per year of online I bonds, you could have your tax refund refunded to you, not direct to your bank, but through I bonds. Those are actually paper. You'll get them in the mail. And so some people are sending in a $5,000 extra payment. It's called a quarterly estimated payment. They're sending in that extra payment early in December or so because they want to file and get an extra refund coming back and they're choosing those paper savings bonds, those I bonds. That's a way to get more I bonds.
Bobbi Rebell:
So you could file your taxes. Let's say you got an extension on your taxes and you're filing them in October. You could send in an overpayment and ask for it to come back in the form of an I bond. And that's a way to actually put more money into I bonds if you wanted.
Jeremy Keil:
That's absolutely it.
Bobbi Rebell:
Okay, great. So that happens automatically. That's something you do on the tax form. You can obviously speak to your tax preparer about that or I'm sure there's ways to figure it out through the IRS that it's on the forms, right?
Jeremy Keil:
Yeah. That's a form. We'll see if I get you the exact form before we're done talking, but it's a form, I believe. I'll figure it out. I'll figure it out for you.
Bobbi Rebell:
We'll figure it out and we're going to put it in the show notes for you, the form that you need, which is going to be on my website, which is just my name, bobbirebell.com, but I'm sure you can also find it on Jeremy's website. So if you're not buying it through a tax refund, do you have to have it through a brokerage account or a savings account or whatever or can you literally just go to treasurydirect.gov and buy it that way? Or do you need it to be in an account?
Jeremy Keil:
Yeah, that's the only way to buy it is treasurydirect.gov. Yeah, you can not buy I bonds through a brokerage account or a bank. Some people are used to buying them through a bank or a payroll deduction. Those are all old school ways to do it. Treasurydirect.gov. Or, and I found it here, it's form 8888. Easy to remember.
Bobbi Rebell:
Okay.
Jeremy Keil:
Form 8888, so tell your tax prepare if you want to get those I bonds, "Here's how I want my refund to come out to me" and you can put right in there up to $5,000 of your refund can come out as a I bond.
Bobbi Rebell:
Oh wow. Okay. So the limit though for the refund is $5,000. So that kind brings you up to 15,000 per person. Well, I guess it's 5,000 per tax return, right?
Jeremy Keil:
That's exactly it. So a married couple, 10,000 each plus 5,000 for the tax return gets you 25,000 for the year as your maximum.
Bobbi Rebell:
All right. What else do we need to know before we wrap up?
Jeremy Keil:
When you're thinking of short term money, you deserve more interest. And your bank is out there getting more interest through things like treasury bills or they're loaning out your money to make a better interest rate. I'd encourage you to go get the best interest you can find and it's definitely not your local bank. It's going to be a place like a high yield savings account. It's going to be a place like treasury bills, six month treasury bills especially, are a higher rate right now. But these I bonds have been kind of hot since middle of 2021. They look like they'll continue that way at least through the end of October of a purchase you can get for 12 months and get more interest than you can get anywhere else for 12 months guaranteed. So just look into those things.
Bobbi Rebell:
Thank you so much. Tell us where people can find more about you and your podcast.
Jeremy Keil:
Yeah, we've got the Retirement Revealed podcast, so just look up Retirement Revealed wherever you listen to podcasts. And then if you'd like to learn more about what we do on the retirement planning front, just go to fivestepretirementplan.com and you'll see some videos about here's how we take people through the retirement planning process.
Bobbi Rebell:
And those are great videos. Thank you so much, Jeremy.
Jeremy Keil:
Yeah, thanks, Bobbi. It's been fun.
Bobbi Rebell:
There is something I don't talk about publicly that I have decided to start sharing even though it can be a bit embarrassing. I get digital overload and it stresses me out for good reason. Because when you have so much junk on your computer because you're not as organized as you should be because you get caught up in all the things that you have to do, if you don't deal with it, all that stuff on your computer starts to really slow things down and can become a total drag on your productivity.
Bobbi Rebell:
For me, there is nothing worse than finally motivating to get stuff done only to be derailed by a sluggish computer that is just not cooperating. A little while ago, I decided I was going to stop just kind of hoping that things would get better and I was going to deal with it. I downloaded something called Clean My Mac. It's from a company called MacPaw.
Bobbi Rebell:
I was skeptical, but I took a deep breath and I tried it. Long story short, it totally worked. I loved how I could see it work through my files with clear and easy to understand graphics. I could see what was messing things up and Clean My Mac would ask me for my okay before deleting files so that something I did need to keep didn't go bye bye. That was one of my biggest fears. I recently reached out to the company and they are offering 10% off to my Financial Grownup listeners who want to also get Clean My Mac. To get that 10% off Clean My Mac, you do need to go to my link. It is bobbirebell.com/cleanmymac. B-O-B-B-I-R-E-B-E-L-L.C-O-M/Cleanmymac. And that is all one word. I promise you you'll be so happy.
Bobbi Rebell:
I want you guys to be in touch with me, let me know how it goes. You deserve to lower the stress of data overload. Trust me. So worth it. As you could probably tell, this is not an investment that I have made in the past because the fact is saving bonds have just not been competitive with the stock market. And while I do want to repeat that this is not an endorsement of I bonds, because everyone's financial situation is different, it's important to at least know what's going on so you can make those decisions.
Bobbi Rebell:
On that note, how are you guys feeling about your investments and are there new kinds of investments or investments that haven't been front and center in recent years, like I bonds, that you want to know more about? DM me on Instagram at BobbiRebell1 or on Twitter at BobbiRebell and please go to my website, bobbirebell.com, and sign up for my free newsletter where you will get more useful investment tips and ideas.
Bobbi Rebell:
You can also get the show notes with links to the things that we talk about on this podcast, like that IRS form, which is important. I think that was really interesting. And you can also get full transcripts of every podcast that we do for free. Just go to the podcast dropdown menu right on the top of the page. I also want to thank those of you who have left reviews for the podcast and ask that if you have not to please consider taking a couple minutes to leave one.
Bobbi Rebell:
I know everyone's so busy, but the support is really appreciated and means a lot to me. If it's easier, take a screenshot while you're listening and just post it on social media and tag me so that I can share it as well. And also thank you because it means a lot. It's really important to me to grow the community and get the word out and help more people. So thank you. I also want to thank Retirement Revealed podcast host and financial advisor Jeremy Keil for helping all of us be financial grownups.
Bobbi Rebell:
Money Tips for Financial Grownups is a production of BRK Media LLC. Editing and production by Steve Stewart. Guest coordination, content creation, social media support, and show notes by Ashley Wall. You can find the podcast show notes, which include links to resources mentioned in the show as well as show transcripts, by going to my website, bobbirebell.com. You can also find an incredible library of hundreds of previous episodes to help you on your journey as a financial grownup.
Bobbi Rebell:
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Bobbi Rebell:
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