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  • Writer's pictureBridget Sullivan Mermel CFP(R) CPA

Should I Buy I Bonds Now & How I Bonds are like Old Fashioned Cocktails!

Should I buy I bonds now? There's an incentive because interest on the series I bond changes November 1st. In this video we'll explain:

* what you should know about the interest rate change,

* why if you're procrastinating you should probably act now,

* and see if our attempt at comparing I bonds to Old Fashions makes sense!

We talk through the advantages to buying series I bonds when interest rates are going down.

We also discuss if I bonds might be appropriate for you. In the current environment, they're especially good for high schoolers saving for college.

We've done several videos on Series I bonds:

In this video, we talk about buying I bonds for kids:

In this video we talk about another advisor's experience with I bonds:

In these two videos, we outline the basics:

In this video we talk about advantages to buying when the interest is going up in the next period:

00:00 Welcome!

00:57 I Bonds and Old Fashioned Cocktails

01:34 Deadline coming up

01:43 Interest rate now and in November

03:58 Getting interest for October

05:18 Anti deflation feature

08:13 I Bonds and kids

10:00 Keep in for a year


John: I bonds are one of our favorite investments. And if you haven't made your investment this year in I bonds, there's a reason to do it before Halloween. Why is that? In this episode, you're going to learn why that is and what you can do to take advantage of this opportunity. And also, we're going to talk about how old-fashioned cocktails fit into this whole discussion. All this here on today's episode of Friends Talk financial Planning. I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.

Bridget: And I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois. And John, before we get going on old fashioneds and I bonds, let's remind everybody to subscribe. It helps YouTube find us and helps us reach more people. So please subscribe that's right.

John: That’s right. And hey, I got excited talking about two of my favorite things. I bonds are a great place to invest, and the old-fashioned cocktails are one of my favorite predinner drinks. And so, I'm really looking forward to this conversation. As we were getting ready to hit record here, Bridget and I talk about a few things, and you had a great idea.

I'm really excited to make these connections, and I look forward to hearing the discussion here. Let's start maybe with some of the details, where the rubber meets the road. I bonds are a great place to invest. They are treasury bonds that are tied with inflation. And there's a deadline coming up that people should be aware of, right?

Bridget: Yeah. And the deadline is October 28th to ensure issuance by October 31st. So, John, the interest rate on I bonds right now—it's a six-month interest rate—is 9.62%. It's tied to inflation, and inflation has been high, but inflation is going down. So now, starting November 1st, if you buy I bonds, they will earn around 6.46%. They haven't announced a rate officially, but 6.4% to 6.5% is what it will likely be. In short, it's going down. It's kind of last call. It's just like with an old fashioned; it's last call.

John: Yeah.

Bridget: Obviously you can get an I bond after that date, but it's a good time to help motivate you to go ahead and put money or fill up your I bond before October 28th.

John: So let me just jump in on that. Thanks for that explanation. And we've had several episodes on this before. Folks can go back and see some of our previous episodes and all the details of how I bonds get calculated and what goes on there. But where the rubber meets the road is when the interest rates adjust on May 1st and November 1st. And the adjustment here coming up this November 1st is going to be lower than it is right now.

Right now, you're getting 9.62%, but it's going to be something like 6.5% coming up. So that's where this deadline comes in. Listen, if you haven't done your I bonds and you haven't maxed out $10,000 per year, this could be the right thing for you. And here I'm thinking November 1st is when the rate changes, which is true, but I really appreciate you saying, “Listen, you got to get this done by October 28th to make sure it's all done before November 1st.”

Bridget: Right. And that's based on the information on the US Treasury Direct website because that's where you have to go to buy them.

John: That's great. We got last call for the 9.62% bonds. That would be kind of like the good old fashioneds, right? The brandy old fashioneds, last call for the brandy's.

Bridget: Oh, no, we're not talking brandy; we'll talk brandy versus whiskey at the end. All right. The next thing is that I want to make sure people understand that the website says that if you get an I bond, if you put your money into I bonds at the end of the month, that is before October 28th, you get that 9.62% for the whole month, so you get the interest as if you put it in the on October 1st, and then you get the 9.62% for the next five months after that.

Ok, so you've got six months at 9.62% and then it ticks down to what the new rate is, which is 6.4% or 6.5%. And so, I just want to make sure that people understand. You just have a delayed reaction so you're still going to get the 6.4%, which is still a great rate but you'll get it after everybody that buys I bonds after November 1st.

John: It sounds sort of like happy hour to me. Like buy one, get a discount. You get credit for interest going back to October 1st if you buy them here before the end of the month.

Bridget: Yeah, it's like you got to the party late, but you still get in on all of the fun.

John: You still get to enjoy the old fashioned.

Bridget: Yeah. Another thing I want to bring up about I bonds that a lot of people don't think about is that the interest rate can't go below zero. We've gotten a question on our channel about TIPS versus I bonds and TIPS can go below zero, so they don't protect you against deflation. Nobody cares about deflation until everybody cares about deflation.

John: Is that a hot stock tip you're talking about?

Bridget: No. This is Jargon. Tip stands for…

John: Treasury Inflation Protected Securities.

Bridget: Yeah, they're backed by the government, which is great, but they can go below zero, so that's how they're different than I bonds. So I bonds are kind of like a designated driver. You've got that cushion, you don't have to worry about getting home, you're not alcoholic, and you got a designated driver.

John: I really appreciate bringing that up—and sorry to call the jargon police down here—but I want to make sure that viewers know what you mean when you're talking about these Treasury Inflation Protected Securities—TIPS. We throw that term around and viewers might think, “Okay, what does that mean?”

And those are also inflation protected bonds. They're tied with inflation, but the really key difference is that they can go below zero. They can fit a place in a portfolio, but they are different than the I bonds because the I bonds can't go below zero with interest. That's really critical. And you know, nobody's been worried about deflation too often around here, but that can be as scary a thing as inflation or worse, right?

Bridget: Yeah.

John: I was talking with some folks here, I was teaching a class in town on retirement, and we were talking about I bonds because I think it's a great place to invest. People should think about these things. See if it fits into your portfolio. And we were talking about, what happens with I bonds in deflation. They go to zero, which is not a great rate. And that's true. But zero is a pretty good place when other things are all going down.

We're in an environment now where stocks aren't doing very hot, obviously bonds aren't doing so hot either. And zero can be a really good place to be, not exactly aligned with deflation, but along those same lines. It doesn't feel like a benefit, getting zero doesn't feel like a benefit, but in the right circumstances it certainly can be one. That's a really important point.

Bridget: A lot of people want security and safety with their investments, especially if the times are tough. So I bonds are great for that. Okay, so let’s move on to another awesome thing about I bonds. Let's talk about who they're good for. An old fashioned is not good for everybody. One, they're not good for his kids. However, I bonds are good for kids.

They are especially good right now if you're saving for your kids’ college, especially high schoolers because of what you just talked about. The stock market is not doing great, and the bond market is not doing great either, but here you get $10,000, which is a lot for college savings, and you get a guaranteed interest rate and there're some benefits to it. We've got a whole video about it. If you do use them for education, I bonds for kids are great right now.

John: I think that's a really smart point. I'm glad you brought that one up, Bridget. And in that so often we think of 529 plans and college savings plans and those things fit a role—they’re awesome—but the benefit that so many times we lose track of is that the benefit of those 529 plans is that the growth comes out tax free. Sometimes we get to thinking that it's sort of like a magic bullet and say, “Oh, I've got to put money in my 529 plan for college.” Not necessarily.

And when you're talking about being in high school, you only have a few years left, and then you need this money. We've got a time rise in less than five years, we can't reliably invest in stocks and there's not going to be a ton of growth. Here's a place where you can get 9% today, maybe 6% tomorrow, but some decent interest, and you know that it's not going below zero. What a great place to put those last dollars as you're getting ready to go into college.

Bridget: Another time when this is good for you is when you've got an emergency fund. If you don't have an emergency fund, this is not as good for you.

John: Yeah. And part of the drawback with the I bonds is that you can't get to the money for a year.

Bridget: Right.

John: So we had a client who was paying for a wedding, and a year ago in May or whatever it was, we bought I bonds, which was super. We got the interest rate last year, if I remember correctly, it was 3.5%, and it was 7.5% later. And then we knew that after May of next year for the June wedding, we needed that money. We had this money earmarked specifically for that purpose.

So when you have a definite time frame I bonds work really well, and it ties in with the idea of college. You know we're not going to need this money. This money is set aside for three years from now when your daughter goes to college. Perfect set up for that, but you have to have that emergency fund in the meantime. It's not in place of that—at least in the beginning.

Bridget: Right. So, like an old fashioned this isn't for everybody, especially for somebody who must do something with the money right away.

John: That's right.

Bridget: You get time to sober up.

John: Yeah. They're pretty good before dinner, not so good for breakfast.

Bridget: Exactly. Not too good to have too many of them. Okay. The other thing I wanted to mention is that it's a calendar year. I was just talking to a client about this yesterday, and they said, “It's just $10,000.” And I said, “Yeah, but it can be $10,000 for you, it can be $10,000 for your spouse.” And then on January 1st, it's a calendar year, you can put another $10,000. So all of a sudden, all these add up to enough.

There are other ways. If you're an optimizer, and you're willing to go through extra hoops to even have more, there're ways you can do it, and you can explore it on the Internet, and we talk about it a little bit. We like to keep things somewhat general in this video by emphasizing this is what we think is great for most people. That's what this video is about; it’s just your $10,000 a year. But my point here is that it's calendar year, so you can do more in January.

John: That's right. And if you do a couple of years of this, it starts to add up. $10,000 by itself isn't going to change the world, but you do it for a few years, suddenly you get $50,000 or $100,000 or any of these interest rates, and it can be a pretty good deal.

Bridget: And you don't have to put in all $10,000. It's not an all or nothing kind of thing. I think the minimum deposit is $25 or $100, so you don't have to go with $10,000 if you don't have that much money. And you need emergency fund first and I bonds second. So if you don't have that much money to put in them, that's fine. You don't have to max it out. That's fine.

John: Well, I'll tell you what. I really wanted to get towards that brandy versus whiskey debate on old fashioneds, but I think we're in a great spot to wrap up here and put a bow on this. Think about I bonds. There's a deadline coming up. Pay attention to that. And again, this is Friends Talk Financial Planning. Both Bridget and I are members of the Alliance of Comprehensive Planners. And if you like what we talk about here, and if you want to find a planner in your area that thinks in a similar way that we do, check out

Bridget: And don't forget to subscribe.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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