I-Bonds Revisited – What Went Wrong

Categories : Financial, News
November 2, 2022

Five months ago, in this very Blog, we discussed the emergence of I-Bonds as a safe investment with an excellent yield. Backed by the full faith and credit of the U.S Government (read: printing press), and, following years of nearly non-existent yields, I-Bonds suddenly began to advertise eye-opening interest rates. Increased interest rates stirred investors, but something went wrong.

In May, annualized interest on I-Bonds rose to 9.62%. But that didn’t mean that an owner would receive a 1-year yield of 9.62% because payout rates are adjusted every 6 months. Assuming we have now passed “peak inflation” for this cycle (something we suspect, but cannot promise), the new 6-month rate, which was supposedly effective with purchases starting November 1, 2022, would be somewhat less. Rate estimates were down, but still attractive. Naturally, many people wanted to lock in before an adjustment occurred.

There are two methods of purchasing I-Bonds, and the first one is only available to a few people annually, and for a very short time. These are taxpayers receiving refunds from their last year’s tax returns, who are allowed to purchase I-Bonds with all or part of their refund.

The second, and most common, way to purchase I-Bonds is to set up an account at treasurydirect.gov. I went there on Friday, October 28, 2022, to establish an account. There was still time to capitalize on the out-sized interest rate for 6 months, right? Actually not, as the website returned a message that it would be down all weekend for maintenance. Monday morning, October 31, it was scheduled to reopen, so there was still time, right? Not so fast. The November 1 interest rate restatement would be effective on October 31, 2022. The new rate was, however, not announced until Tuesday, November 1.

Logically, any business would seek to accommodate its customers after making a big announcement, but this is government, and different rules seemingly apply. The 20+ year-old Treasury website suddenly needed maintenance that interfered with making purchases at the high yield, and the rate change date had been moved ahead of the standard declaration date.

Worse, perhaps, was that several people have told us that for days leading up to the weekend maintenance, the website crashed when they attempted to purchase I-Bonds at the most favorable rate. Government in action.

While everyone prefers a much lower rate of inflation, the new 6-month I-Bond interest rate is a healthy 6.89%, and worthy of consideration. Note that I-Bonds have many restrictions and conditions that make them suitable for some investors, but the analysis is required to determine if a particular individual would benefit from ownership. We can help make that determination.

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