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I Bonds Set to Pay 9.62% Through October

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There’s not much good to say about inflation, with higher prices dogging consumers on the food market and the gas pump. But there may be one brilliant spot: Government I bonds are earning eye-popping rates.

Recent I bonds — low-risk federal savings bonds indexed to inflation — issued through the tip of October will earn an annualized rate of 9.62 percent for six months, the Treasury Department announced this week. The speed also applies to older I bonds which might be still earning interest.

That represents the very best inflation rate the bonds have earned since they were introduced in 1998, said Ken Tumin, the founding father of the financial website DepositAccounts.com. It means I bonds are earning excess of a typical federally insured savings account or certificate of deposit.

Due to the way in which rates are set on I bonds, people holding older bonds could also be earning double-digit rates. An I bond rate has two parts: a hard and fast rate, set when the bond is issued, which stays the identical for its 30-year life, and a variable rate, which is predicated on the six-month change of the Consumer Price Index and may reset twice a 12 months, in May and November. The Treasury Department applies a formula to mix the 2 right into a composite rate.

The fixed-rate component is currently zero — however it has been 3 percent or higher up to now. I bonds purchased through early 2001 are currently earning greater than 13 percent, if holders haven’t already redeemed them, in keeping with the federal government’s TreasuryDirect website.

The Treasury Department doesn’t disclose its formula for setting the fixed rate, Mr. Tumin said. But because the Federal Reserve raises its benchmark rate of interest, it seems “more likely” that the fixed rate on I bonds could nudge up at the subsequent reset in November, Mr. Tumin said.

I bonds are considered quite protected. While it’s possible that the combined rate could fall to zero (it has happened before), it’s guaranteed to not go below that — so that you’ll no less than get your initial investment back if you redeem the bond, in keeping with the Treasury Department.

You possibly can acquire as much as $10,000 in I bonds per person, per 12 months, on TreasuryDirect.gov. Plus you’ll be able to buy as much as $5,000 more using your federal income tax refund. (A pair filing a joint tax return should buy as much as $25,000 per 12 months.)

Take into account that you have to hold I bonds for no less than 12 months before redeeming them, and also you’ll be docked the last three months of interest as a penalty when you redeem before five years.

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