It’s not every day that bonds spark the kind of investor frenzy often seen on Wall Street or among cryptocurrency enthusiasts.
But that’s exactly where we were on Friday a week ago, when thousands of people crashed a Treasury Department website in the race for the midnight deadline.
People made nearly $1 billion in Ibonds on TreasuryDirect that day, securing 9.62% for six months. And while that stunning price is no longer available, the new one is still great.
From November 1, Series I savings bonds pay 6.89% for six months. That’s significantly higher interest rates than a savings account, which charges just under 0.16% on average, according to the November 1 Bankrate survey. And while many online financial institutions can do better, their accounts still only pay 2 to 3%.
To purchase an electronic I-Bond, you must create an account with treasurydirect.gov.
As of Oct. 28, nearly 100,000 accounts were opened and $979 million worth of Ibonds were purchased, according to a Treasury Department official, with the overwhelming majority of buyers catching the 9.62% interest rate.
That’s 14% of the $6.9 billion in savings bonds the department sold for all of October.
Here’s what you should know about this little-known government-backed bond.
Why are people flocking to I-Bonds?
Investing means risk. The stock market has been everywhere — up, down, all the way down — so people are looking for a safe place to park their money.
According to Bloomberg, the S&P 500 is down 19% year to date and the Dow Jones Industrial Average is down 10%. The tech-heavy Nasdaq is down 30%.
After years of pathetic interest rates on savings and checking accounts, I-Bonds, backed by the federal government, are a beacon of financial security.
From November 2021 through the end of October, the Treasury Department sold more than $35 billion in electronic savings bonds.
That’s a staggering amount of cash people have transferred from their savings and checking accounts — and it’s in stark contrast to the financial situation of other Americans struggling with high inflation. It shows that there are plenty of Americans who have money to spare, especially since you can’t sell an I-Bond for 12 months.
The normally opaque I-Bonds have resonated with investors because they address two of their biggest concerns right now, said Christine Benz, Morningstar’s director of personal finance and retirement and co-host of The Long View podcast.
“They provide safety in a year when both stocks and bonds have fallen and help preserve purchasing power in an inflationary environment,” Benz said.
How long will the bonds pay 6.89%?
The rate is good until April 30, 2023.
If you buy an I-Bond, the rate applies for the first six months after the issue date.
Can I still get the higher price if the site keeps kicking me out?
The Treasury Department has been warning people for weeks that unprecedented interest in I-Bonds could delay purchases.
Even if you waited until the last minute and couldn’t make your purchase, it’s not your fault. TreasuryDirect is an outdated website that needs an overhaul. The site also crashed in May when the 9.62% rate was announced.
How many I-Bonds can I buy?
You can buy an I-Bond for any amount between $25 and $10,000. You can specify a specific amount per cent. So you can buy an I-Bond for $49.99.
Be careful not to exceed the $10,000 per calendar year limit for electronically purchased I-Bonds. If your purchase is declined, it can take weeks to get your money back.
But if you’re anticipating a big tax refund next year, you could use that to buy another $5,000 in paper I-Bonds, bringing the potential I-Bond to a total of $15,000 per person.
To purchase paper savings bonds, use IRS Form 8888.
Is it still worth buying I-Bonds?
Yes, the current price still beats other conservative options.
But don’t confuse the security of I-Bonds with the need for liquidity, Benz said.
“I-Bond investors can’t redeem their bonds within the first 12 months, and if they redeem before five years are up, they lose three months’ interest,” Benz said. “But I-Bonds can be great as safe reserves that investors don’t need direct access to.”
Singletary is a personal finance columnist for the Washington Post.