fbpx
Six Things to Know about U.S. Treasury Series I Savings Bonds and Their High Yield

Six Things to Know about U.S. Treasury Series I Savings Bonds and Their High Yield

By chance, I came across something that hadn’t been on my radar screen for a very long time. Enticed by the rate of return I saw in this current yield-starved environment, I saw 7.12%. Must be a junk bond or something that has significant default risk, right? 

Wrong! The current yield of 7.12% is in none other than Series I savings bonds through the U.S. government. For review, “I” bonds pay two different rates, one tied to a fixed rate (which is currently a whopping 0%), and the other tied to the inflation rate. These are based on a 30-year term, with some liquidity provisions I will explain below. 

As inflation has increased, I bond rates have significantly increased, with the most current rate being the second-highest rate in history according to TreasuryDirect. 

THE DETAILS & SOME FAQs ABOUT SERIES I SAVINGS BONDS

How often are interest rates set? 

Semi-Annually. When I say “7.12% interest rate”, it means you are receiving an annual interest rate equivalent to that percentage, but the rate changes after that six-month period. (It could stay the same, but it is unlikely). The new rate is then set and you earn interest at that rate. For example, if you had $10,000 invested in the current bonds, you essentially would earn one-half of the 7.12% after six months. If you buy the November issue, the new rate starts May 1st.

Can I get out before 30 years? 

Just because it is a 30-year bond does not mean you must keep it in that long. You cannot withdraw any money in the first year. After that, if you cash it in prior to holding it for five years, you will forfeit the latest three months of interest. 

How do I buy them? 

You can buy them without any fees directly at TreasuryDirect

How much can I buy? 

For electronic bonds, you may buy up to $10,000 each calendar year per social security number. This is also a way to buy $5k more in paper bonds utilizing your tax refund. See TreasuryDirect for more information on that.

Why should I consider this in my portfolio? 

Everyone’s situation is unique. For many of us, we are looking for some places that are conservative that just keep pace with inflation and don’t carry stock market risk. While it’s likely a very small amount for many of our clients, it still may help beat CDs or other short-term fixed income investments. Furthermore, as a general rule when interest rates rise, bond values fall. This is not an instrument that trades like that, so the prospect of higher rates will not affect this investment. 

If this inflation does end up being more “transitory”, or short-term, you can always cash out with the interest penalty after one year, so it’s quite liquid and flexible.

Why didn’t my financial advisor mention this to me? 

First, is your financial advisor a fiduciary and acting in your best interests at all times? If so, perhaps they should have at least discussed the topic with you. Second, if your advisor is compensated with assets under management, perhaps they didn’t want to reduce their fees by seeing assets leave their doors. Last, if they are compensated on commissions it’s highly likely that they would rather sell you something and get paid instead of offering suggestions that are pro bono. 

If you have any questions related to the topics listed above, do not hesitate to contact me at [email protected] or leave a comment and we will get back to you.

Clint Walkner, Managing Partner – Walkner Condon Financial Advisors

What the Certified Exit Planning Advisor Designation is and Why I Pursued It

What the Certified Exit Planning Advisor Designation is and Why I Pursued It

One of the most overlooked yet essential steps that a private business owner, or owners, should take is establishing an exit plan. It is vital to know that at the end of years of hard work and dedication the three critical components of success in succession are met – personal goals, financial goals, and business goals. 

More than Just the Face Value of Your Business

The question that most often goes unanswered, or is not known, is “What is my business really worth?” It is possible to get a business valuation to determine a value, but in many cases, there is more to the success of the transition than just the final amount. That is why I decided to study to achieve the Certified Exit Planning Advisor accreditation through the Exit Planning Institute. I want to add value to my clients who are business owners as well as those that I come into contact with throughout my career.

As one of the owners here at Walkner Condon Financial Advisors, I have first-hand experience with understanding the needs of a growing business. We have grown tremendously over the last four years, and I am incredibly grateful for the people I work with and for all of the clients that we get to work for. Creating an exit plan is something that we have discussed and simply put, it is good business. It can and should be a win-win for everyone if the process of exit planning is done thoroughly. Creating a team around you that has professional experience crafting and implementing exit plans is extremely important and can add to the value of the company for the owner or owners. It can also help with the morale of the employees of the company and then increase the chances of long-term success. 

Baby Boomers and Business Ownership

The majority of privately-owned businesses are owned by Baby Boomers, who are being forced to consider the options that they have to exit their businesses at an alarming rate. Every day since 2011, 10,000 people in the United States turned 65. That will continue for a couple of years still. With so many businesses being owned by Baby Boomers, they need to have an exit plan in place that will benefit their personal, financial, and business goals. That is where a Certified Exit Planning Advisor can really add value to these owners by organizing the team of professionals and experts around the ownership group to create and execute this plan. In reality, most companies are not ready to be sold when the owner wants to sell, which makes the exit planning process even more important. 

The Power of Planning Ahead

I am proud of the CEPA designation that I pursued, and I am looking forward to utilizing the skills and knowledge that I learned to help owners as they plan for the inevitable exit of their business. I have already had a handful of conversations with current clients and others in the community, conversations that have reinforced the value that I believe someone with the CEPA designation and expertise can add to financial planning for their personal and business goals. I know one thing is certain in this uncertain business world: You will exit your business at some point…either in a way that you planned for or one that you did not plan for! 

 

Jonathon Jordan, CFP®, CEPA