Podcast Episode - Suze School: Series I Bonds Master Class

Listen to Podcast Episode:

For years, Suze has been telling us what a great investment Series I Bonds are. On today’s podcast, we get a master class detailing everything we need to know about these bonds.

Podcast Transcript:

April 17, 2022. Happy Easter and Passover everyone from both Miss Travis and myself and we hope all of you are totally going to enjoy these holidays and to take time to reflect because I really think that's what holidays are all about, reflecting about the message of the holiday. Yes, I know we get together. Many people do with family and friends and we celebrate. But I always like to think about what is the meaning of the holiday that I am celebrating. What are the lessons that we can all learn from times past and for me, one of the major lessons from both these holidays is to just keep believing in what you believe. To never stop believing in who you are, what you are, the mission that you have, the journey that you need to make. Just don't lose faith which then brings me to today's Suze School because truthfully there is one investment, one investment that I have believed in and have never lost my belief in it since 1998 when this investment first emerged on the scenes. And if you listen to my radio show starting in 2001 or my TV shows or anything that I did. You heard me touting over and over again. Series I Bonds, Series I Bonds, Series I Bonds. But then as time went on, it was as if. All right. Suze stop talking about Series I Bonds. People have heard you talk about Series I Bonds; you have to move on from them. But then about a year or so ago I got back on them again. Big time and I started to tell all of you about. I want you to do Series I Bonds. I want you to do them now and on and on. But I have to say that at this particular point in time given what interest rates are doing in most savings accounts, checking accounts CDS even Treasuries there is not a more incredible investment at this point in time than a Series I Bonds. Now, notice I said investment and I use the word investment because as you will learn in a second here, Series I Bonds, if you put money in them, you cannot touch that money for at least one year you can't touch it. So, if you need money, your emergency fund, something like that. That is not where money goes into a Series I Bonds. That's where you keep it in your Alliant Ultimate Opportunity Savings Account or wherever you're using. But an investment is money that you do not touch. Normally got that. However, if you have at least one year where you know you don't need to touch this money and you won't you have got to really listen to me now about Series I Bonds now. The truth is that no matter how much I've been talking about Series I Bonds on this podcast, no matter how much I answer your questions it doesn't matter because many of you are still confused and you're writing me on the Ask Suze Podcast or the Women & Money app, tell me about these Suze, I don't understand, and you're asking question after question. So, I thought today would be a perfect day if I did a complete Suze's School on, I Bonds. So, whenever you have questions in the future, I can say just go to the podcast on April 17, 2022 and get your questions answered there. Also, I just have to say that for those of you that have the Women & Money app and you can get the Women & Money app by either downloading it on Google Play or Apple Apps. You all know now that I told you what you needed to know about; I Bonds immediately when it happened on April 12th. So all of you, if you haven't downloaded the Women & Money app, you should do so and you should take advantage of my wall on the Women & Money app because it's there or I'm starting to post things that immediately happened that you need to know about it right away. It is there today that I will be posting the history of I Bond interest rates so that you can understand what happens to them over time. It is there that I am tending to answer more questions. So, I am telling you if you haven't taken advantage of that app up until now you should absolutely go and download it. All right, so let's begin and let's start this as if I never talked about, I Bonds before. You've never heard about I Bonds before. And this is going to be your master class on them. So, take out pencil, pen, or paper whatever you want to use or jot notes on your iPad or whatever you use. But here's what you need to understand. Series I Bonds are Bonds issued by the United States Government. So, they are backed by the full faith and credit of the government. You cannot lose money no matter what happens in this world. These are not Bonds that trade on the market that go up and down in value. Like other Bonds such as your Treasury Bill Bonds and Notes, your Municipal Bonds, your Corporate Bonds, whatever they may be. These are Bonds that are simply issued by the United States government that do not trade, which means you can never ever lose money no matter what happens. We got that. Next, where can you buy Series I Bonds? Series I Bonds can only be purchased directly through the Treasury. So, don't go be asking your banker, your account executive, or your financial advisor or whatever you may be using. You have to go to TreasuryDirect.gov. You have got to open up an account there. It is easy and you then will purchase your Series I Bonds directly through your Treasury Direct.gov account again. Series I Bonds stands for a Series of Bonds that are issued by the United States government and the I stands for inflation. So, most people would buy these Bonds who thought inflation was going to go up and or stay high. How do you take title to your Series I Bonds account? So when you buy an I Bond you have a few choices and you will see when you go to TreasuryDirect.gov on the application form, it will ask you do you want to be a solo owner, do you want to be a primary owner, or do you want to have a beneficiary? Those are your three choices. You would choose solo owner if you don't want another owner or a beneficiary, you just want to own these Bonds and you don't really care what happens to them after you die, you would be a solo owner. If you want somebody to be able to make decisions with these Bonds, possibly view these Bonds, redeem these Bonds, then you would want to be the primary owner. But then you would want to name a secondary owner. So, for me I would own it. KT would be the secondary owner. Now the secondary owner has a lot of rights. The secondary owner can look at the value of your Bonds and everything if you grant permission to do so. Or you can be the owner of these Bonds and have a beneficiary. But the beneficiary cannot do anything except get these Bonds when you die. Now, what's really important to know is that the second owner and or the beneficiary cannot be anything other than a person. So, you cannot leave your trust as the beneficiary, you cannot have a trust as the second owner, so it always has to be a person. So, when you are opening up and registering for your tribe on account, you have to figure out how do you want to take title to this account? Next denominations, the denominations that you can purchase these Bonds in start at any amount after $25, you could buy $25.10 worth $50 in a penny worth? You could buy $30 worth. Any amount. Minimum being $25 all the way up to a maximum of $10,000 per person per year. So that is the most you can buy. And that $10,000 is a calendar year. So, if you bought $10,000 in December of 2021, you could have bought another 10,000 maximum in 2022. Now if you keep listening, I will be telling you how you could buy more than $10,000 per year. But just for now know that per person, the maximum is $10,000 per calendar year. Now how often can you buy them? If you were to buy $1,000 right now, you still could buy any time this year, up to $9,000 more. So, you could buy $50, 1 month, $100 the next month. You could buy as many Bonds as you want in any denomination as you want. Up to a maximum of $10,000 per year. So, you can buy it for yourself again. I'll tell you more later on how else an individual can buy more. But you can buy these as gifts. You can buy them for anybody you want as well. Just so you know. All right, what are the restrictions on Series I Bonds? The very first restriction is that when you buy a Series I Bond; you cannot touch it on any level for one year. It doesn't matter the emergency you have. It doesn't matter if you are on your deathbed, you cannot touch that money from year to through year five. You can touch it, but there will be a three-month interest penalty if you do from year five until year 30. When these Bonds mature remember, you can redeem them anytime in there, but they will not pay you any more interest after the 30th year. There is absolutely no penalty whatsoever for you to withdraw this money or redeem it. So, if you buy a Bond and you want to redeem it in year six, you can do so without any interest penalty whatsoever. But here is what is important for you to remember when you redeem your Bond, you don't have to redeem the entire Bond. Let's say you bought a Bond for $10,000 and three years from now, you want to redeem it. You know, you have to pay a three-month interest penalty. Okay? But you don't have to redeem the entire $10,000. If you just need $2,000 redeem 2,000. If you only need $100 redeem $100. But you don't have to redeem the entire bomd. When you do make a redemption, however, they will pro rate the interest that the account has earned. And when you get some of your money back or all of your money back, they will tell you how much was interest and how much was principal? Remember it's not an all or nothing situation. So that's why I Bonds can absolutely meet your needs when your needs happen to be, I need some money. Next let's talk about taxation. I Bonds are tax deferred, which means in most cases, you are not going to pay taxes on them until you withdraw funds. So here you are, you've purchased an I Bond. The interest rate is compounding everything is great. You don't know taxes on that until you go to redeem those Bonds. So, they are tax deferred. When you do go to redeem the Bonds and withdraw your funds. You will only pay taxes on the federal level. Listen closely, these Bonds are never taxed on state income tax levels. So, these Bonds are always state income tax free. So, you only owe income tax on the federal level. Also, just so you know, Series I Bonds can be tax free if they're used for hiring qualified education costs and an eligible institution in the same year that you were through the money. So again, that's something that's great. But you have to need income requirements that are set each year to be able to do so the I in the name I Bond, as I told you before, stands for inflation. So, when you purchase and I Bond, there are two factors that affect the interest rate that you get. The first factor is that each Bond is a sign of fixed interest rate and that interest rate does not change for the 30-year life of this I Bond, currently that fixed interest rate is 0%. Now, here's what's very important to understand about the fixed rate and I'll give you an example in my own personal experience of investing in I Bonds In 2001 I purchased I Bonds and at that time, the fixed rate was 3%. Now, one would normally think that you get that 3% for the entire 30-year term of the I Bond. That is not how it works. I get three as long as there is an inflation rate. If we go through a period of deflation, then that 3% can be lowered all the way down to zero. So, there were some years that I've been holding this Bond that I made absolutely nothing on the Bond whatsoever. You just need to know that. So, if ever there comes a time that you buy an I Bond that has a fixed rate above the 0% that you're getting right now. Don't make the mistake of thinking that that interest rate is yours. No matter what happens to inflation because if there's deflation They will lower that three, but you will never ever get less than 0% on your I Bond. The second factor that every I Bond comes with is based on inflation. So, the second rate will change every six months depending on what inflation is doing. Your rate that is based on inflation will change every May 1st and November 1st. So, when you purchase a Series I Bond you do not get that inflation rate for the next 30 years, you get the fixed interest rate for the next 30 years but that happens to be at zero right now. So that's not going to affect you on any level. But the inflation rate changes every six months. So, don't go be sitting there thinking that when you buy an I Bond and maybe you're currently going to be making 7.12%. Let's say you did this in January or February or even now right now don't go be thinking for the next 30 years you're going to be making 7.12% on your money because you are not, that is not how this works. Your interest rate will change every six months. So again, here's what you have to understand if you bought an I Bond in 2022 And you got 7.12% on it. The truth of the matter is you don't get 7.12% because that's the annual yield you get half of that and half of that would be 3.56%. So, for six months You will have received 3.56% on your Bond in May when interest rates change now, we have been told that the new rate Inflation rate that will start May 1st on I Bonds will be 9.62%. So, after your six months is up on the bomd that you bought already in 2022. Then when you renew, you automatically renew at the 9.62% rate or half of that for the next six months would be 4.81%. Do you understand that everybody so you will automatically be renewed at the new interest rate that set if your I Bond that you purchased goes over the May deadline here? Then when your Bond is up, you automatically get the rate that was set in May or November. So, you don't have to worry about that. So again, I want us to be very clear when you purchase an I Bond, you have to rates the fixed interest rate which is currently at 0%. And then you get an inflation rate Currently as of this podcast that inflation rate has been set at 7.12%. But you only get half of that because that rate is only good for six months after your six months is up. You get whatever the rate was set in May of this year, which currently is 9.62%. So, you will get half of that or 4.81%. If you wait until May 1st, let’s, just say and you buy a new Series I Bonds you then will lock in that 9.62%. But again, it's only set for six months. So, you're really only getting 4.81%. And then we'll have to see what you get in November of 2022 this year to see what your next interest rate will be. So, are we all clear on that now? There may be and it could happen this time where they have decided to increase in May. We'll know shortly the 0% fixed interest rate to maybe a higher rate. I don't think that will be happening. And I also don't think that that is enough reason to wait to possibly by your high Bond in May versus right now. Now why am I saying that maybe you should buy your I Bond right now? Well we have to really look at this very, very carefully. We know right now that at least until essentially another 11 days or April 28 that the I Bond rate that you would get for the next six months would be 7.12%. We also know now that six months from that date whenever you bought it before April 28th, your next six-month reset would be at 9.62%. What we don't know is what will it be in November? So, if you bought or by before 28th of April which essentially the last time that you can really buy in I Bond for this 7.12% rate. You know you will get 3.56% for six months after that you know you will get 4.81% for six months. So, you know that you are guaranteed to get approximately 8.5% on your money for one year. I'm just going to reiterate this one more time. The reason that I keep saying that I want all of you to do this by at least April 28 is that it takes time when you buy an I Bond to have it settle. So, it's possible if you buy it on April 28 it won't settle. Which means you own it until May which mean you will be missed out on the 7.12% lock for the next six months. So, if you want to lock it in and do that one year guaranteed to yourself then can you just do it now? There are going to be many of you out there that think that you should wait until May 1 to buy because you want that 9.62% interest rate. Well you know you are guaranteed 4.81% till November because remember it's only good for six months, you only get half of that rate. And if CPI, the consumer price index which is what these inflation rates are based on, if it stays the same or goes higher alright you made the right choice, then you would get another 4.81% or even higher. However, it could also go lower. Now I've been in I Bonds long enough that is it possible in November that the new I Bond rate could go even below the 7.12% that it is right now. Oh, you betcha it can I personally do not know which way it's going to be. However, I think it would be really important that if you're confused you don't know what to do. Maybe you want to buy half right now and half come May 1st. So, let's say you were going to put $10,000 into an I Bond right now or any amount of money. You could put $5,000 in right now and $5,000 May 1st and then see what happens. I'm somebody who doesn't like to take a gamble. Truthfully and I am more than happy If I were to get 8.5% guaranteed to me for the next year. Are you kidding me? Why would I take any chances with that in the type of economic environment that we have right now? So, you're just going to have to decide because this is a choice, I want you to make for yourself. But for those of you who have already purchased Series I Bonds, and you locked in the max at 7.12% this year. In six months from the time you purchased it, you'll get to participate in this next rate of 9.62%. So that will guarantee you an interest rate for one year of about 8.5%. Now. Just let's take a second and talk about interest rates. Now you're going to want to check your balance when you put money into an I Bond. You like to see; I'd love to check mine. You want to see how much has it grown, you have to know that they're not going to send you statements that you have got to go to your account at TreasuryDirect.gov sign into your account and look at what your balance is. Therefore, make sure that you know your account number don't lose it. Make sure you know the answers to your security questions because you want to always be able to get into your account. So obviously you're going to want to check the interest rate and how your account is doing. Please know that there is normally a three-month lag when it comes to the interest rates that they show you. So, if your Bonds are in that five-year period where there's an automatic three-month interest penalty, if you redeem it, the amount that they are showing you includes that three-month interest penalty after five years is up. They don't subtract it. So just know that's why it may be different than what you think. Also if you check and you're within let's say the first four months of having purchased a Series I Bond when you go to look at your interest, you're not going to see any whatsoever because again it's the three month interest penalty and that's just how they do it. What's really important for you to know is that your interest however is credited monthly and automatically reinvested every six months. So, interest compounds semiannually. Got that everybody. Okay now a lot of you are saying to me Suze I can lock up my money for a year that I know I can do but I really can't lock it up for more than that is. It's still worth it for me to do an I Bond. Oh, you betcha it is everybody. So if you think about it, if you need to come out sometime in a year, two, or let's say you don't even need to come out but you don't like the interest rate that they renewed at November 1st or if any time that you're owning this Bond between years two and five, you don't like the renewal rate and you either have a better place to invest the money, higher interest rate, whatever it may be. And you want to come out you have to think about that. The only penalty Is what a three-month interest penalty. So, let's just say you purchased an I Bond right now in 2022 and you locked in 7.12%, then you're going to get this 9.62% or you're going to average approximately 8.5% on your money for 12 months. And now you want to come out for whatever reason if you just waited three more months and let's say you wanted to come out because interest rates have gone down inflation went down. Now remember what I'm telling you here? Everybody if you just commit to at least 15 months especially if interest rates have come down after your year period is up then the three-month interest penalty isn't going to be three months of your 9.62%. It might be three months of a lower interest rate. So, if you just cash out in 15 months versus 12 months, you’re still going to average about a 6.75% return on your money assuming that you bought right now. Where are you going to get a 6% return for a year or 15 months investment? You're not going to get that anywhere in a Treasury, in a CD, anywhere. So, do you understand why this is a great investment? Even if you have to come out in years 2, 3, 4, or 5, all I ask you is if interest rates have gone down. So, you're at 7.12% for this year, 9.6, for this year. The next renewal is at 6%. And let's just say you want to come out of it, just wait three months into that new rate. So, 15 months and then your three-month interest penalty will be based on 6% rather than the 9.62%. So just remember that I said that to you. Next. What if you want to buy more than $10,000 worth? You can buy $10,000 maximum per person. You also if you have a Living Revocable Trust, you can also buy another 10,000. Even if your trust is in the same social security number that you used to purchase them for yourself. No problem. Just go on to TreasuryDirect.gov. You then open up another account in the name of your trust and there you go. So, KT and I both have Treasury Direct accounts in our individual name. We both have Treasury Direct accounts in our individual trust name. We also are just opening up a Treasury Direct account in each of our businesses name. That now will allow us legally to each have $30,000 in Series I Bonds, and you can do that. If you are going to get a tax refund, you can also purchase another $5,000 of a paper I Bond via your tax refund. You just have to know when you are doing your taxes which you all should be doing right now. If it's a paper tax return, just attach form 8888 to your return and you will tell them that you want your return up to a maximum of $5,000 to go into your I Bond account. If you're filing an electronic return where you're using TurboTax or whatever it is that you're using, they will instruct you how to do it. So, there are Electronic Bonds which are purchased through TreasuryDirect.gov. If you get a tax refund and purchase a Series II Bond, you will get issued what a Paper Bond. So, if KT and I got tax refunds. We could if we wanted to have $35,000 a year that we are putting in two Series I Bonds. If you're a little bit confused on it again, go to my app where I post certain things that will help you. I'll post an article that maybe tells you exactly how you open up a trust account, how that works again. I think it's important for you to look at the history of Airbnb on interest rates because if you saw what happened over time you would also see why there are times that maybe you keep them, maybe times that you don't buy them whatever it may be but just like a Roth IRA. I personally believe you want to get more money into I Bonds. So when inflation happens to go especially because there is a limit on how much you can do per year or maybe there's a limit in your own personal means you can't afford more than 500 a year or 2,000 at least if inflation goes, you start to participate in Bonds that you have already purchased. But overall, I believe in I Bonds I have always believed in I Bonds. I think they are incredible gifts. I think inflation on some level is absolutely here to stay for maybe another year or so after that you'll have to decide if it makes sense for you, but this is something you all should look into. So, there you go that is your holiday Suze School for April 17, 2022. Until Thursday. Always remember one thing, and that's to be safe, to be strong, to be secure. And most of all believe in who you are and never stop believing. All right, everybody sees you soon. Bye bye.

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