Tuesday, March 27, 2012

If You Want To Earn 3% Risk Free On Your Cash, Hurry Up

A Reminder To Jump On I Bonds Before It Is Too Late

As I mentioned in a prior post (http://lifeinvestmentseverything.blogspot.com/2012/03/where-to-invest-safe-money.html), one of the places to put some of your "safe" money is I bonds issued by the US Treasury.  Bonds bought by the end of April will earn 3.06% for the first six months, with rates subsequent to that based on the consumer price index (CPI rate).  Based on the CPI thus far, I would expect the following six month rate to be over 1%.  An all-in 12 month rate would be approximately 2 to 3% depending on what the second half of the year's rate turns out to be (very attractive compared to a 1 year CD at 1% if you can even find a rate that high).  However, if you wish to jump on this opportunity you will need to move soon.

I bonds are limited to $10,000 per year per social security number and they are only sold via http://www.treasurydirect.gov/.  A husband and wife could put up to $20,000 a year into I bonds per year using accounts linked to both their social security numbers.  However, it takes a couple of weeks to set up a Treasury Direct account and fund it, so do not delay in doing so if you want to earn a higher rate on a short term, zero risk instrument such as this.

As always, there is at least one caveat: I bonds are not redeemable at all for one year from the date of purchase.  If you buy I bonds make sure that you will not need accesss to the money for a year.  Interest on these bonds is tax-deferred until you cash them in, but if you cash them in in less than 5 years after purchase you will pay a penalty equal to the last three months' interest.

As always, be careful, do your own due diligence, consult your advisor.  You can find a way to lose money on just about anything, so consider all the possible ways of doing so before you invest in this or anything else.

No comments:

Post a Comment