Because of quirks in how I-bond interest rates are set, many commentators have seized on the opportunity that now exists to capture a little extra yield—provided you act before the end of October.
This week’s worse-than-expected inflation report led to turmoil in more than one market, but you only read about one of them.
I think these commentators are making a mountain out of a molehill, however. While they’re not wrong about the window of opportunity that exists for the next two weeks, the actual dollars involved are too small to make any real difference to anyone’s retirement.
One is that the dollars involved just aren’t that consequential. The maximum amount of I-bonds that any individual is allowed to purchase in a calendar year is $10,000. The 3.14-percentage-point yield difference translates to $26 more per month. While that’s better than a stick in the eye, it’s not enough to make a difference to your retirement standard of living.
It was understandable in prior years why the U.S. Treasury set the I-bond fixed rate at 0%, since TIPS’ yields at the time were negative. But now that TIPS yields have become significantly positive, the I-bond fixed rate will need to rise to become competitive. Though there’s no way of knowing whether the U.S. Treasury will in fact increase the I-bond fixed rate in early November, Harry Sit of The Finance Buff, said in an email that he would be “disappointed” if they don’t.
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