Looking for a safe 7.1% investment?

As gasoline prices approach $5 per gallon in some places, lots of people are worried about being able to afford living in the future. A new variant after almost two years of a pandemic is also a deadly threat. And there’s Russia amassing troops on the Ukraine border and China’s goal of turning Taiwan into a larger version of Hong Kong. Always something.

So today we’ve got a double-header for you on Your Turn (10 a.m. EST), streaming here or on the radio in the D.C. area at 1500 AM.

My lead off guest is financial planner Arthur Stein, who specializes in managing finances of active and retired feds. Today he’s going to talk about the pros and cons of playing it “safe” with your TSP and the definition of just what “safe” is. In the second half of the show, I’ll do a year-in-review interview with colleague Nicole Ogrysko, our pay and benefits experts, with a surprise twist at the end. You can listen live or catch the show (which will be archived on our home page) later on.

Meantime, here’s Art Stein’s super investment tip:

A Government Guaranteed Bond Paying 7.1% Interest? Yes, It’s Real.

By Arthur Stein, CFP®

If your emergency funds are in bank accounts, it’s time to think about Series I Savings Bonds (I Bonds) from the U.S. Government, through TreasuryDirect. These bonds are currently paying 7.1% in interest.

Yes, there are disadvantages, explained below. However, transferring some of your bank funds to Series I Savings Bonds will probably be a profitable exchange with little risk.

I Bonds are 30-year bonds issued and guaranteed by the U.S. Treasury. There are two sources of interest income:

  • A rate based upon recent inflation, currently 7.12%. That rate is guaranteed for six months and then adjusts for inflation over the last six-month period. The current rate will be adjusted in April.
  • A rate fixed for the life of the bond, 0% for the life of the bonds being sold at this time.

The new inflation based rate, set in April for the next six months, could be higher or lower than the current rate. It depends upon whether inflation over the previous six months has increased or decreased.

Interest is added semi-annually to the value of the bond. If you hold the bond for at least five years, when you cash in (redeem) the bond, you receive all the interest the bond has earned plus the amount you paid for the bond. If you redeem after the one-year lock-in but before five years, three months of interest is deducted. Taxes on the interest are only due when you redeem the bond.

Advantages of Series I Savings Bonds include:

  • Guaranteed by the U.S. Government.
  • Currently, a much higher interest rate than bank accounts and CDs.
  • No commissions (to buy or sell) or any other fees.
  • Whether you sell an I Bond before it matures or hold it to maturity, you always receive full face value plus interest. Example: pay $10,000 for $10,000 of bonds and receive $10,000 plus interest when sold.
  • Taxes on interest are postponed until a bond is sold or matures.
  • Interest is exempt from state taxes.
  • Interest earnings may be excluded from Federal income tax when used to finance education (see education tax exclusions).

Disadvantages:

  • I Bonds cannot be sold for 12 months after the original purchase. Don’t invest funds you might need to spend within twelve months.
  • There is a penalty equal to three months of interest if a bond is sold less than five years after purchase
  • Interest must be reinvested; it cannot be taken as income.
  • Purchases and sales can only occur in a TreasuryDirect® account; they cannot be purchased, held or sold through the TSP, 401k, 403b or an IRA. You cannot purchase through an Investment Advisor, stock broker, bank or credit union.

The maximum investment is $10,000 per calendar year per social security number. The minimum investment is $25.

A parent or other adult custodian may open a Treasury Direct account for a child that is linked to the adult’s Treasury Direct account. The parent or other adult custodian can buy securities and conduct other transactions for the child, and other adults can buy savings bonds for a child as gifts.

More detailed information can be found at Treasury Direct. The link to purchase Series I Savings Bonds is here.

Because the show was prerecorded, we won’t be taking calls or questions today.

Nearly Useless Factoid

By Alazar Moges

The whale shark is the largest fish in the world. They can grow to be more than 50 feet long and weigh several tons.

Source: NOAA Fisheries

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Your Turn with Mike Causey

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THRIFT SAVINGS PLAN TICKER

Jan 24, 2022 Close Change YTD*
L Income 23.0998 -0.004 5.42%
L 2025 11.8788 -0.0041 9.75%
L 2030 41.7457 -0.0202 12.37%
L 2035 12.5177 -0.0065 13.43%
L 2040 47.2981 -0.0258 14.51%
L 2045 12.9364 -0.007 15.40%
L 2050 28.3038 -0.0157 16.34%
L 2055 13.8741 -0.008 19.90%
L 2060 13.8738 -0.0081 19.90%
L 2065 13.8737 -0.0081 19.90%
G Fund 16.7539 0.0022 1.38%
F Fund 20.5114 -0.0212 -1.46%
C Fund 66.6178 0.185 28.68%
S Fund 74.2811 1.2775 12.45%
I Fund 37.7682 -0.4925 11.45%
Closing price updated at approx 6pm ET each business day. More at tsp.gov
* YTD data is updated on the last day of the month.