Series I bonds still ‘attractive for longer-term investors’ as annual rate falls to 4.3%

 

• Series I bonds will pay 4.3% annual interest through October, a drop from 6.89% in November, amid falling inflation.
• With the fixed portion of the rate at 0.9%, which stays the same after purchase, I bonds have become more attractive to long-term investors.
• But shorter-term investors may consider alternatives, such as certificates of deposits and Treasury bills.

 by Kate Dore, CFP® 

Read the full article with details on the dual aspects of I-bond rates at: 

https://www.cnbc.com/2023/05/01/series-i-bond-rate-falls-to-4point3percent-through-october-how-it-compares-.html

 

Inflation means higher interest on online savings accounts

 If you still have substantial amounts sitting in a bricks and mortar bank or credit union, it's time to check out rates at online institutions. 

Check out online savings accounts at CIT Bank, Synchrony, Marcus and American Express. CIT is currently paying 3.25%, Synchrony 3%, Marcus 3% and American Express 2.75%. The rates have climbed so frequently this year that they’ll probably be higher by the time you read this.

Bankrate.com is the go-to place for comparing interest rates for both saving and borrowing: https://www.bankrate.com/

More information at: https://humbledollar.com/money-guide/higher-bank-yields/

 

 

Inflation adjusted US government bonds paying 7.12%

With interest rates on savings ate rock bottom low, check out U.S. Government I-bonds.
NEWS: The initial interest rate on new Series I savings bonds is the second-highest ever: 7.12 percent. You can buy I bonds at that rate through April 2022.  Details at: https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm

Be sure you understand how I-bonds work. You can't access your funds in the first 12 months. If you cash out before 5 years, you forfeit 3 months of interest. 

But the advantage is that you do not pay state income taxes on the interest and you can delay paying federal interest until you cash out, a big advantage over traditional savings options like CDs and savings accounts. 

 

U.S. Government I Bonds (inflation protected) are the best savings option you probably have never heard about

"In today’s yield-parched world, money-market funds are paying 0.02%, bank savings accounts 0.13%, a three-month Treasury bill 0.015% and even a 30-year Treasury bond only 2.25%." Wall Street Journal writer Jason Zweig reminds us of one of the best kept secrets for savers; I-Bonds. These savings instruments are inflation-protected U.S. savings bonds that are currently paying 3.54% for bonds issued May 2021 – October 2021. I bonds are almost risk-free and offer significant tax advantages.

"The maximum purchase is $10,000 per year per account holder (unless you elect to take your tax refund in the form of an I bond)."

"Ironically, the less you earn and have to invest, the more powerful a tool I bonds are."

Never heard of I-bonds? Maybe because "financial advisers have no incentive to sell I bonds, which don’t pay commissions or charge expenses and are available exclusively from the U.S. government (see TreasuryDirect.gov)" 

"Their yield consists of a fixed rate for the 30-year life of the bond and an inflation rate, which adjusts semiannually. The current 3.54% applies to I bonds issued until Nov. 1, 2021 and will reset every six months unless the official government rate of inflation stays constant."

While the yield can decline if inflation drops (not likely in coming years according to my reading of the WSJ). "But, unlike with Treasury inflation-protected securities, or TIPS, the yield on I bonds can never go below zero. So they protect against both inflation and deflation."

Interest on I bonds is exempt from state and local income tax! So especially appealing for residents of high tax states. "For income-tax purposes, you can choose to defer declaring your I-bond interest until maturity or you redeem, whichever comes first." 

Some caveats: You can't access your funds for first 12 months. If you cash out before 5 years, you lose 3 months of interest. "If you buy an I bond at today’s 3.54% rate and sell it one year and a day from now, you’ll earn 2.65% after the penalty (assuming the rate doesn’t change). That’s roughly quadruple what you’d get from a one-year certificate of deposit or ultra-short-term bond fund."

I bonds are ideal for emergency savings. You don't get monthly or yearly reminders about your account so it's "out of sight, out of mind" so you're not tempted to used the money for less than an emergency.  They are also well-suited for short term goals where you want to be sure your money grows and you can't lose purchasing power. 

Thanks to Jason Zweig for this timely reminder about a great addition to one's portfolio. Check out his website and his books: https://jasonzweig.com/

For more details see: https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm

 

Savings Rate skyrocketed during Coronavirus: How to use your dividend wisely

 While many Americans are truly suffering from job losses, health related expenses, and the stress of working at home while trying to help children navigate Zoom school, our economy is becoming more divided. For those who can work from home and aren't eating out, traveling, and shopping as they used to, while getting a $1200/adult & $500/child coronavirus "bonus," now is the time to put those extra funds to work. If you haven't already donated to your local food pantry, crisis center, political candidates, etc., consider upgrading your home's (and vehicle's) energy efficiency. 

Another factor to consider is how low interest rates are on savings accounts and money funds: less than 1%. Better to put that money to use in energy savings. 

Now is a great time to upgrade major home appliances to the most energy efficient models of refrigerators, washer-dryers, furnaces, and hot water heaters. Start with the most energy intensive appliances and those that are oldest.

"Heating appliances consume the most energy, according to the U.S. Energy Information Administration."

"In total, these appliances consume about 46% of a home’s electricity. Specifically, air conditioning uses about 17% of your home’s energy, space heating an additional 15%, and water heating uses 14%." https://www.beupp.com/articles/home-appliances-power-breakdown/

The balance between heating an air conditioning obviously depends on where you live.

Consider a tankless hot water heater:  https://www.energy.gov/energysaver/heat-and-cool/water-heating/tankless-or-demand-type-water-heaters

Other benefits of tankless water heaters beside saving energy are: no need to secure a large tank to a firm upright to prevent disaster during an earthquake and think about the outcome when an aging water heater leaks... especially if you are away fromh ome when it happens.

"Because heating and cooling is a huge source of energy consumption, replacing an inefficient furnace or air conditioning unit will save the most energy and money. When purchasing new appliances, you can compare their energy efficiency by checking the yellow tag that displays the appliance’s energy rating." https://www.wisegeek.com/which-home-appliances-use-the-most-energy.htm

With more and more hybrid and electric vehicles coming to the market and expanded charging stations, now is a good time to upgrade to a more energy efficient vehicle. 

Best electric cars of 2020 and 2021: also includes plug-in hybrids: https://www.edmunds.com/electric-car/

Best Electric Cars for 2020 (USN&WR): https://cars.usnews.com/cars-trucks/best-electric-cars

Of course, if you are getting an electric vehicle, you should first invest in roof top solar panels so you aren't burning coal.  

 

How to build an emergency fund in the midst of an emergency

Now is not the time to stick your head in the sand and bemoan your situation! You are not alone.
National surveys by the Federal Reserve have found that many households would struggle to handle an unexpected $400 expense.

Writing for The New York Times, Ann Carrns provides this helpful advice from finance experts:
Even small cash cushions can help people stave off disaster. As little as $250 can significantly reduce the risk that a family will miss paying a utility bill or be evicted. “Each extra dollar saved” reduces the likelihood of having to skip bill payments.

First, try to estimate your expected future income. Talk with your employer but recognize the situation is changing rapidly.

Next, take stock of possible sources of cash and credit. Don't open new credit card accounts, but knowing the credit limit on each card you already use to get an idea of what you can draw on if needed.
Even though the federal tax filing deadline has been delayed, if you expect a tax refund, file now and use this money to start your emergency fund. (The average refund is about $3,000).

Scrutinize your spending, and cut where you can, even if you are still fully employed. Can you cancel subscriptions, switch to a less expensive cellphone plan for a few months or negotiate a lower rate on your internet? (My husband reduced our internet monthly charge from $69 to $40 this morning.)
Direct these savings to your emergency fund in an online savings account.

If your situation is dire, consider temporarily reducing contributions to your retirement account and redirecting the money to an emergency fund. A cut is better than stopping contributions entirely.

If you own a home, you could consider opening a home equity line of credit as a financial backstop.

Check with your employer to see if they offer emergency loans.

"Many companies allow hardship withdrawals or loans from 401(k) retirement plans, but doing so puts your long-term retirement savings at risk. Hardship withdrawals don’t have to be paid back but are taxable as income and may result in penalties. Loans aren’t taxable but must be repaid, and they can be risky because if you leave your employer you generally have to repay the loan quickly, said J. Michael Collins, director of the Center for Financial Security at the University of Wisconsin-Madison."

Check out the New York Times Money Hub blog post and other related posts. Search for other savings options on this searchable blog. 

Trump's tariffs cost US consumers $106 billion per year. Your cost: $831/year

"US tariffs recently imposed on goods from China will cost American households $106 billion annually, according to a report from the Federal Reserve Bank of New York. These tariffs likely will reduce overall tariff revenue collected by the US and will "create large economic distortions," the report said." 
Tariffs are a hidden tax on consumer purchasing power.

Trump's China tariffs hike will cost average U.S. family $831 a year

• Higher U.S. tariffs on Chinese goods are "likely to create large economic distortions and reduce U.S. tariff revenues," according to economists at the New York Federal Reserve. 
• The latest round of 25% tariffs on $200 billion in certain Chinese imports will cost U.S. households $106 billion a year, or $831 for the average family, New York Fed researchers found.
• Tens of billions in recent stock-market losses reflect worries that U.S. trade friction with China isn't going away soon.  https://www.cbsnews.com/news/trumps-china-tariffs-hike-will-cost-typical-u-s-family-831-a-year-fed-economists-say/

Invest that $800 each year for 10 years in an Individual Retirement Account (IRA) or 401(k) at a modest 4% return for a total of $11,173. Use an online calculator to make your own estimates:
http://moneychimp.com/calculator/compound_interest_calculator.htm

I-bond rate increases to 2.83%

The current interest rate on I-bonds: 2.83% for bonds issued November 2018-April 2019.

https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm
This is an increase from 2.52% for the previous 6 months. 
Learn about I-Bonds: 
Rates & Terms

• I bonds have an annual interest rate derived from a fixed rate and a semiannual inflation rate.
• Interest, if any, is added to the bond monthly and is paid when you cash the bond.
• I bonds are sold at face value; i.e., you pay $50 for a $50 bond.

• More about I bond rates

Redemption Information

• Minimum term of ownership: 1 year
• Interest-earning period: 30 years
• Early redemption penalties:
• Before 5 years, forfeit interest from the previous 3 months
• After 5 years, no penalty

• More about redemption of I bonds

Tax Considerations

• Savings bonds are exempt from taxation by any State or political subdivision of a State, except for estate or inheritance taxes.
• Interest earnings are subject to Federal income tax.
• Interest earnings may be excluded from Federal income tax when used to finance education (see education tax exclusions).

• More about tax considerations

Looking for savings options that pay more than 1/10th of 1%?

Check out Jean Chatzky's advice on where to find the best savings options today, "How to grow your savings and reach your short term goals faster," at: https://www.nbcnews.com/better/business/how-grow-your-savings-reach-your-short-term-goals-ncna857871

"Although the average savings accounts are (as we noted) paying peanuts, the best are paying almost 20 times that much. You just have to search for them on a website like bankrate.com or gobankingrates.com."

High yield checking accounts pay even more than savings accounts because "they make their money on swipe fees. Right now, for example, Blue Credit Union is paying 4% on balances of up to $15,000. Keep close to that in the account for a year and you've netted $600."

10 Charts to explain the economy

Frustrated with your inability to save? It may not be a factor related to your character but more an effect of stagnant wages. Echeck out the Top 10 Charts of 2104 to help understand why we need an increase in the minimum wage as well as the cost of the growing wage & wealth inequality, courtesy of the Economic Policy Institute:  http://www.epi.org/publication/the-top-10-charts-of-2014/?utm_source=Economic+Policy+Institute&utm_campaign=49769a8560-Top_Charts_201412_18_2014&utm_medium=email&utm_term=0_e7c5826c50-49769a8560-55890353