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Craig Lundquist, MBA, ChFC®, CRPC®
VP of Wealth Management
651-773-2757
Kristin Becker
Senior Administrative Assistant
651-773-2821
Ideal Wealth Advisors
Located at Ideal Credit Union
8499 Tamarack Road
Woodbury, MN 55125
CRPC conferred by College for Financial Planning
May/June 2024
The Facts About Tips and I Bonds
With fixed-income investment rates seeming to be holding higher, many investors are taking a second look at bond investments with a wary eye on inflation. If you’re one of those investors, Treasury Inflation Protected Securities (TIPS) and I bonds offer inflation protection and currently attractive returns. Both are government-backed investments with interest rates that are periodically adjusted for inflation.
TIPS Basics
TIPS are popular for protecting portfolios from inflation and profiting from it because they pay interest every six months based on a fixed rate determined at the bond’s auction.* However, the interest payment amounts can vary because the rate is applied to the adjusted principal or value of the bond. The TIPS principal amount is adjusted according to the consumer price index. As a result, investors receive higher interest or coupon payments as inflation rises. Conversely, investors will receive lower interest payments if deflation occurs.You can buy TIPS with maturities of five, ten, and 30 years. They’re considered a low-risk investment because the U.S. government backs them. At maturity, TIPS return the adjusted or the original principal, whichever is greater. They’re available directly from the government through the Treasury Direct system in $100 increments with a minimum investment of $100. You can also buy TIPS from your financial professional.
ANOTHER WAY TO ADD I-BONDS TO YOUR PORTFOLIO IS TO USE UP TO $5,000 OF YOUR FEDERAL INCOME TAX REFUND TO BUY THEM DIRECTLY. ANY UNUSED PORTION WILL BE DIRECTLY DEPOSITED TO YOUR SPECIFIED FINANCIAL ACCOUNT OR PAID BY CHECK.
I Bond Basics
Series I bonds are non-marketable bonds in the U.S. Treasury savings bond program.* Their non-marketable feature means they cannot be bought or sold in the secondary market. These bonds earn two types of interest: an interest rate fixed for the bond’s life and an inflation adjusted rate each May and November based on changes in the non-seasonally adjusted consumer price index for all urban consumers (CPI-U).I bonds are considered lower risk investments because they’re backed by the full faith and credit of the U.S. government, and their redemption value cannot decline. But this safety generally comes with a lower return than corporate or municipal bonds.
Annual purchases of eletronic bonds are limited to $10,000 per Social Security number. Bonds can be held for as little as one year or as long as 30 years, but if sold after fewer than five years, the holder sacrifices the last three months’ interest.
Ask the Pros
The taxation of these instruments can be confusing, so consult your tax advisor to prevent surprises.It is important that you understand how I bonds work. For example they have the annual $15,000 investment ceiling, withdrawal restrictions and pay interest upon redemption.
Your financial professional can tell you more about these investments and whether they could play a part in your portfolio.
*Investors should read the prospectus and consider the investment objectives, risks, charges, and expenses of the fund before investing.
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Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Ideal Credit Union and Ideal Wealth Advisors are not registered as a broker/dealer or investment advisor. Registered representatives of LPL offer products and services using Ideal Wealth Advisors, and may also be employees of Ideal Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from and not affiliates of Ideal Credit Union or Ideal Wealth Advisors. Securities and insurance offered through LPL or its affiliates are:
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