I Bonds: Here is What to Know
Goretti Garcia - President / Financial Adviser for NEA
Rising U.S. interest rates have impacted living costs, especially for households battling higher mortgage and credit card interest rates. However, on a positive note, new I bond purchases bring two key improvements. The Treasury Department announced an increased annualized yield for I bonds purchased through April, now at 5.27%, up from the prior 4.30%. Additionally, the fixed rate for these bonds has risen to 1.30% from 0.9% in the last six months. This fixed rate, coupled with the I bond inflation rate changing every six months, ensures a guaranteed return above inflation for 30 years, specifically at 1.3%. However, the appeal of I bonds may be contingent on the Federal Reserve's stance on interest rate hikes. Keeping an eye on the Fed's decisions is crucial for investors navigating these changes.
What are I bonds?
I bonds, a type of US savings bonds issued by the Treasury, are known for being government-backed and designed to keep pace with inflation. Their returns are tied to the Consumer Price Index (CPI). Two years ago, these bonds gained popularity due to surging inflation, reaching an annualized rate of 9.62% in May 2022. The I bond rate consists of a fixed rate for the bond's 30-year life and a semiannual inflation rate set by the Treasury Department in May and November, based on the non-seasonally adjusted CPI. How do you invest in I Bonds? Purchasing I Bonds electronically is possible through TreasuryDirect.gov, while paper savings bonds can only be acquired using your IRS tax refund. There's a limit of $10,000 per calendar year for I bond purchases, but consulting your Financial Adviser may provide insights on exceeding this amount. Keep in mind that, although I bonds accrue interest for 30 years, you cannot cash them in until after the first year. If you redeem them before five years, you’ll forfeit the last three months of interest. Importantly, your accumulated principal is always secure, and market fluctuations do not impact your investment. These are important things for investors looking for safer investments who do not need access to these funds in the short term. For more information about I bonds and if they are right for you, feel free to contact our Financial Adviser, Goretti Garcia.
Social Security COLA and Medicare Part B in 2024
In our previous newsletter, we anticipated the possible Social Security COLA increase for 2024. Finally, on October 12, the Social Security Administration declared a 3.2% cost-of-living adjustment for the forthcoming year. Although it falls short of the 8.7% adjustment seen in 2023, it remains a notable increase, surpassing the 20-year average of 2.6% for cost-of-living adjustments. Simultaneously, the Centers for Medicare and Medicaid Services disclosed a nearly 6% rise in Part B premiums for 2024, jumping from $164.90 to $174.70 per month. This surge is largely attributed to the FDA's approval of the Alzheimer's drug Leqembi, which can carry an annual cost exceeding $26,000 without insurance. The substantial increase in Medicare Part B premiums is anticipated to offset, either partially or entirely, the comparatively modest 3.2% COLA set to take effect in 2024.
A Message from Goretti:
Dear valued clients, As we gather with gratitude in our hearts, I want to express my sincere appreciation for your trust and partnership. Thank you for being an integral part of our journey at New Era Advisory. Wishing you and your loved ones a Thanksgiving filled with warmth, joy, and the company of those you hold dear.