Why savings bonds are your best inflation hedge

With so many global financial markets responding to inflation negatively, what is a good long-term investment for a novice investor? For many investors, especially the military, savings bonds may be a surprising answer.

Did you know that savings bonds currently pay 9.62% interest? This is definitely a much better rate than most banks and credit unions offer; And unlike stocks, cryptocurrencies, non-fungible tokens (NFTs) or the latest investment fad, savings bonds will never lose their value.

While savings bonds are not necessarily a good short-term investment, they can be an excellent option for those looking for a safe long-term investment for retirement, saving for the future of your children or grandchildren, or just a safe place to invest.

What are savings bonds?

Savings bonds are issued by the US Treasury and are a low-risk, government-backed investment. Savings bonds are exempt from state and local income taxes and may be exempt from federal taxes if they are used for education or other situations.

The Treasury currently issues two types of bonds: Series EE and Series I.

Series EE bonds are similar to savings bonds that have been around since World War II; They offer a fixed interest rate that changes every six months. Currently, energy efficiency bonds pay an annual interest rate of 0.10%; However, after 20 years, the bond is guaranteed to at least double the value of the bond, and the government will make a one-time adjustment to your investment to meet that guarantee.

Series I bonds, introduced in 1998, have an interest rate that follows the consumer price index and is adjusted every six months. The Consumer Price Index measures the cost of goods and services and reflects the rate of inflation. Currently, Series 1 bonds pay an interest rate of 9.62%, and this rate may change on October 1, depending on current inflation trends.

The interest rate on Series 1 bonds purchased in 1998 has been adjusted over the years, so it currently gives investors a rate of return of 13.18%. That’s not too bad, especially when you look at the tax considerations and the fact that the money you invest in savings bonds, as well as the interest rate, is guaranteed by the federal government.

This interest rate rivals a savings plan (TSPC Fund, which tracks the Standard & Poor’s 500 (S&P 500) index, a mix of 500 stocks of large to mid-sized US companies. While C . box Returned an average of 13.08% over 10 yearsThe same C fund has experienced a 16.15% loss in value in the past 12 months.

Savings bonds will never lose their value. This is what makes it an attractive investment for long-term goals — like college savings, retirement, or a nest egg for your kids — or when you don’t need the money right away, but don’t want to lose it all either. Investing $25 to $50 a week in savings bonds for your children can give them a huge amount of change when they start out in life, or for other expenses.

Savings bonds must be held for at least 12 months, with lower interest rates being paid on bonds less than five years old. There is a minimum investment of $25 and a maximum annual investment of $10,000 per person. The bonds are guaranteed to pay interest for 30 years. You can buy bonds for anyone as long as they have a Social Security number.

How to buy savings bonds

You can buy savings bonds with active-duty benefits or your retired paycheck; You can also buy them directly online or with a federal income tax refund. You must create an account with TreasuryDirect, the US Treasury website, before you can make any purchases. Consult your payroll office or visit my salary for more information.

So, if you want a potential tax-free investment that is safe for inflation, Series I savings bonds is a strategy to consider.

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