series I bonds (inflation adjusted)
- maximum purchase – per calendar year, per social security number – $10,000
- additional purchase – $10,000 per business entity (so, for instance, if you are an Uber driver you can get $10K in bonds personally and $10K in bonds in a separate account as sole proprietorship
- interest (set twice per year) peaked at 9.62% in spring 2022
- interest rate based on CPI
- interest added monthly
- minimum term 1 year
- penalty – lose 3 months interest if withdrawn before 5 years
- pays interest for 30 years
series EE bonds
- maximum purchase – per calendar year, per social security number – $10,000
- fixed interest rate was 0.10% in spring 2022
- face value of bond is guaranteed to double after holding bonds for 20 years
- interest rate works out to be 3.527% per year if held for 20 years
- interest added monthly
- minimum term 1 year
- penalty – lose 3 months interest if withdrawn before 5 years
- pays interest for 30 years
TIPS bonds
- face value (par value) is the bond’s face value + inflation rate
- so after a year at 10% inflation, a $1000 bond is worth $1,100
- this is cumulative, so in year 2, if inflation is 5%, the bond will be worth $1155
- interest (coupon) is also paid on bond, at the face value
- if inflation is negative, face value can go down
- at redemption, if held to maturity, bond is redeemed at full original face value or higher
- interest rate (coupon is based on auction
- no maximum purchase amount
- trick is to buy the bonds at a good price – since they are an auction, a $1000 bond can cost $1090, etc, to purchase
TIPS info
- auction purchase – in periods of inflation, you will pay a premium per bond
- if purchased directly there is 0 volatility
- if held to maturity there is 0 risk
- small coupon – changes based on principal
- principal changes based on inflation (up or down)
- each year inflation adjustment is cumulative
- risk is when deflationary period forces price of TIPS lower (and there is no upward inflation adjustment)