money Higher Interest Rate Options
I ncreasingly, I’ve been asked where savers can get better interest rates than their banks offer. In this article, I hope to point out several ways for you to find higher interest rates. Keep in mind that different investments have varying risks, including loss of principal, fees, inability to access your money prior to maturity, and tax consequences. Consider these and other possible risks. It’s best to consult your financial advisor. US Treasury I series bonds offer interest rates that adjust for infla- tion. Currently, I bonds earn 6.89 percent, though that can change based on inflation. Interest on I bonds compounds and is exempt from state, though not federal, income tax. You can only purchase $10,000 worth of I bonds annually, though you can
increase that to $15,000 by using your tax refund to buy them. I bonds can’t be redeemed in the first year, and if you redeem them before five years have passed, you forfeit three months of interest. You can purchase these at TreasuryDirect.gov . Other Treasury bonds can be bought through Treasury Direct or through a broker. Maturities range from 30 days to 30 years. As of mid-Febru- ary, two-year Treasuries were yield- ing over 4.6 percent. Treasury bond values fluctuate with changes in inter- est rates, but there’s little risk of loss if you hold them until maturity. Like I series bonds, these instruments are exempt from state income tax. Municipal bonds are issued by many localities, including states, cities,
school districts, and authorities. Inter- est is exempt from federal income tax and usually that of the issuing state. But there can be a few twists, so know the specifics of the bonds you buy. These bonds may be backed by specific revenue streams, or they might be general obligations of the issuer. Sometimes there is insurance that protects you if the issuer defaults. As a result, the risk one takes on by buying the bonds varies. The bonds, which are available in a wide variety of maturities, are often not as liquid as Treasuries and fluctuate in price prior to maturity. Therefore, selling them prior to maturity can sometimes be difficult or costly. Until they reach maturity, corporate bonds also fluctuate with interest rate changes. Additionally, there is
36 • AMAC Magazine
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