June 04, 2023
Listen to Podcast Episode:
This week’s Suze School is a deep dive on what you should do, now, with Series I Bonds as well as a plan on using Certificates of Deposits to your advantage.
Music: Music (In).
Suze: June 4th 2023. Welcome everybody to the Women and Money podcast as well as everybody smart enough to listen.
Suze: Well, are you feeling better now that you know that the United States government is not going to default on its debt?
Suze: Why they have to do this is beyond me, but all right. So we're good for another two years at least. Obviously, they're gonna have to continue to offer treasuries probably at a higher interest rate to pay back the debt that they had to get into, to borrow the money to get us through to this point. So you might want to keep checking the interest rates that are being offered
Suze: on treasuries because maybe they're gonna be a little bit higher just so, you know, but we'll see what happens. Ok.
Suze: What isn't so great is that they also voted down
Suze: the student loan forgiveness program where President Biden wanted to forgive up to $20,000 in many cases for those of you who qualified to forgive your student loan
Suze: That now has been voted down, it will go to President Biden's desk. He will obviously veto it. So it is now up to the Supreme Court. It's been there anyway. So it's not a big deal, I guess, to see will they uphold it or will they not? However, I do think it's important that all of you really do understand that at the end of August of this year,
Suze: for those of you who do have student loans, you are going to have to start paying them back. So hopefully you will absolutely be prepared for that.
Suze: So the good news is they passed the bill raising the debt limit. All right, today Suze School, however, is going to be about two things. So get out your little notebooks
Suze: because the first part of Suze School is on Series I Bonds. And should you or should you not cash in your I bonds
Suze: that have a 0% fixed interest rate. Second part to the podcast today will be explaining how the CDs at Alliant Credit Union actually work. But I want to start with I Bonds because, you know, forever and ever and ever, I seriously loved I Bonds.
Suze: However many of you now are writing me and asking me if you should cash in your I Bonds to either repurchase new I Bonds or to cash them in and buy
Suze: the 18 month certificate of deposit at Alliant Credit Union.
Suze: Let me just answer that second question right away, which is no, you are not to cash in, in I Bond to buy at this point in time, a certificate of deposit that is not what I want you to be doing because we need to see what happens with I Bonds. But what all of you need to know
Suze: is that it may make sense for many of you, many of you, to cash out your I Bonds
Suze: and purchase another I Bond with it before the end of October of this year. And why is that Suze Orman? It is because many of you, if you remember there are two parts to your Series I Bond. One part is the fixed interest rate
Suze: and the fixed interest rate stays with that I Bond every single year. It does not fluctuate until the year your I Bond matures
Suze: The other part as many of you know, is attached to inflation
Suze: and therefore it is variable and it absolutely adjusts every six months when a new interest rate is declared in May and November of every single year.
Suze: Now when I Bonds were first issued. Ok. And that was back in 1998
Suze: you have to know and many of you purchased them back then,
Suze: you have to know that the fixed interest rate all the way really until like 2001 went from 3.40% in 1998 to about 3.6%. Finished 2001, November of 2001. If you bought an I Bond, then the declared fixed interest rate was 3%.
Suze: Now think about this
Suze: on top of that, you also got the inflation rate, but forget the inflation, let's say there was no inflation at all.
Suze: That was still a great fixed interest rate, especially if you think back the past few years when interest rates were really at 0%. But people who bought Series I Bonds during those years were making 3.43 point 6% or whatever. Now they're making a fabulous interest rate
Suze: for the inflation that is on top of whatever their fixed interest rate happens to be.
Suze: So the people who bought it way back when, when interest rates for the fixed part were high 3% - 2% whatever it may have been, you need to keep those I Bonds and you are not to sell them simply to do what? Get another I Bond or another investment. No, you are not. Do you hear me?
Suze: That would make no sense whatsoever. In fact, in my opinion, from 1998 to 2008, approximately
Suze: when the fixed interest rate was at 1.20%. I would be keeping those I bonds and I wouldn't even be thinking twice if I didn't need the money to, I wouldn't even think about cashing them out because remember your fixed interest rate is added on top of whatever the inflation rate happens to be. However,
Suze: starting in about 2008,
Suze: truthfully maybe all the way until 2018.
Suze: When many of those years, the interest rate for the fixed part was at zero.
Suze: There were years when it was at 0.20%, 0.10% whatever it may be.
Suze: Those are all years with one exception and I'll get to that in a second. Those are all years
Suze: where if you like the concept of an I Bond ,
Suze: I do not have a problem with you selling your I Bond. Number one, you are out of the five year period because remember
Suze: when you buy an I Bond, you cannot sell it the first year
Suze: and the next four years, you have a three month interest penalty. Well, if you bought your I Bonds in like 2018 or before that, you're out in most cases of what? Your three month interest penalty.
Suze: So therefore, hey, if you want to cash in one of your I Bonds, you're in a low tax bracket, it's not going to affect you terribly. You want to cash it out
Suze: and take $10,000 and buy a new I Bond and lock in the 0.9 oh percent rate.
Suze: I don't have a problem with you doing that on any level. There was one year and that was with the I Bonds that were issued in November of 2008. They were issued with a .70% fixed interest rate.
Suze: I don't know. I think if I had that type of a fixed rate in comparison to the 0.90% rate, I have to tell you, I most likely would stick with that. I Bond. I wouldn't cash it out just for a little bit of an increase. This is a guideline for you.
Suze: The truth of the matter is you need to look at what your fixed rates are
Suze: and I don't think I would truthfully make a change and have to pay taxes
Suze: on the interest of the I Bond if my fixed rate was above 0.40% right in there. 0.30%, 0.40% if it's above 0.30%, I just don't think I would do it, but that's up to you where you are. Now, obviously
Suze: starting in May of 2020. What started to happen was once again, the fixed interest rate went down to what, 0% again.
Suze: Now, there are some of you that bought I Bonds starting in 2019 through like 2022 that you also have essentially a very low fixed interest rate or a 0% interest rate.
Suze: And maybe you are enticed to cash out your bonds in order to do what? After your one year holding period is up to reinvest that money by another one to lock in the 0.90% interest rate. Ok, then it becomes really tricky because you're still within that four year period,
Suze: you're in there somewhere where you will have to pay a three month interest penalty.
Suze: And the question becomes, does that make sense for you or not? If you remember back to one of the very beginning podcasts when I was talking about I Bonds, I was telling you that the best way if you're gonna cash out after a year is to do so at least 15 months after your holding period began.
Suze: So that hopefully the next three months, you held it for a year,
Suze: the next three months would be at a lower interest rate. If you are now being credited on your I Bind. the 3.38% variable rate
Suze: and now you wanna get out, you have to make sure that you hold it for the three months at that rate. Because why the three month true interest penalty at the 3.38% is only going to be 0.85%.
Suze: So if you then took that money reinvested it at the fixed interest rate of 0.90%, it would take you one year and you would be absolutely even.
Suze: And then what happens your one year period of where you cannot touch that money starts all over again
Suze: and then you have another four years where you cannot touch that money without the three month interest penalty. I don't know if that's worth it to you and you want to make sure that you get every single penny out of it and you're not really in a high income tax bracket at all, or maybe you're not in a tax bracket at all. So, there are no tax ramifications to you for that. Ok.
Suze: It's a whole lot to do, but it is just something I want you to think about.
Suze: I Bonds have a limit of $10,000 per year
Suze: for an individual. But you can buy another 10,000 in a trust, another 10,000 in a business. You can also gift $10,000 of an I bond to your spouse and vice versa.
Suze: So if you have multiple I Bonds that you want to do this with, there is a way for you to get it in to the 0.90% fixed part of this I Bond series because who knows what it is going to be come November.
Suze: So did that all confuse you? I hope it did not. But all of you should know and you can know by just going to Treasury direct dot gov, check your I Bonds out
Suze: and look at what the fixed rate is on every I Bond that you have. All right. Next...
Suze: I have been talking to you about certificates of deposit, especially the ones at Alliant Credit Union
Suze: because it's like, why not when you can, go a little bit longer term right now until we see how the economy does. What happens with it, what happens with everything? Get a nice 5.15% on your money.
Suze: And a little bit ago I was talking to Dennis Devine, the CEO of Alliant Credit Union and I knew that the three month and the six month certificates of deposits worked this way that you could get, let's say the current rate is 4.5 oh percent. On the three month. You could buy a three month certificate of deposit
Suze: or a four month certificate or a five month certificate for 4.50%. You get to choose your maturity date at six months, it went to 4.75%. That was the current interest rate.
Suze: And then you could have that 4.75% for six months, seven months, eight months, nine months, 10 months, 11 months. And then it went to the 12 months
Suze: and on and on. And I thought that that was just something for the three and six month certificate of deposit
Suze: After talking to Dennis Devine and many of you, by the way, laddered your certificates of deposits at Alliant Credit Union where you bought a three month, a four month, a five month, a six month, a seven month, an eight month, a nine month, a 10 month, 11 month and so on. You did it every month. So you had money coming due
Suze: and that was like your emergency fund. Anyway,
Suze: when I was telling all of you about the 18 month certificate, of deposit, I just thought that was for 18 months. That was it.
Suze: That's how it is that most other banks or credit unions or whatever. In fact, I don't know of any others that do this. Maybe they do.
Suze: But when I was talking to Dennis a while ago because I always talk to him and I go, how safe is everything, how's everything going? He says Suze... and he explains all of that to me, how they're doing what they're doing and why we should not be worried on any level because it's my job to worry for you. So I check it out all the time. I can tell you that
Suze: We were talking about the 18 month. And I said, don't you have anything that's like 5% for longer. And he said, well, yeah, you can get the 18 month, the 19 month, the 20 month, the 21st month, the 22nd month and the 23rd month.
Suze: And I said, wait a minute, are you telling me that if I wanted to go out longer? And I want you to listen to me right now. If I wanted to go out 23 months, lock in my money for almost two years, I could lock in 5.15%. And he said yes.
Suze: Then I said, but Dennis, the two year certificate of deposit
Suze: is at 4.45%.
Suze: And he was saying, yes, I know because that one you can lock in for 24 months, 25 months, 26 so on. And he said we can't give that high of an interest rate for that long, Suze. That's why you need to now think about does it make more sense for you
Suze: to not do the 18 month certificate of deposit with Alliant Credit Union, but do the 23 month certificate of deposit with Alliant Credit Union for 5.15%? I want you to think about that because even if you look at a two year treasury right now, the two year treasury is only at like 4.4%
Suze: and so is three quarters of a percent almost worth it for you to do that versus a treasury? And it may very well be depending on your tax bracket.
Suze: So you won't see it advertised when you look at their rates, you'll see three months, six months, 12 months, 18 months, two year, three year, four year, five year, you'll see all of that.
Suze: You won't see though that you have the ability to go month by month
Suze: and choose the month that you want.
Suze: I think that's an incredible thing. So my advice to all of you is why not lock in 5.15% which happens to be the highest interest rate for an 18 month
Suze: that you're going to find anywhere or longer by the way,
Suze: why not lock in 5.15% for 23 months? I think that's great. No matter what. Besides that, obviously, I just want to talk a little bit about the financial markets.
Suze: You have to, again, look at your money
Suze: and you have to look at your money really over the long term.
Suze: Everybody right now is talking about INVIDIA stock, Apple, all these technology stocks, stocks that had been obliterated just a few years ago. And now they are coming back and coming back and going up a lot every day.
Suze: But people who owned those stocks when they own them, they watched them go all the way up, then all the way back down, seriously down and now they're going all the way back up again.
Suze: When I say you cannot time the market, you cannot time the market, but you need to be in the market because otherwise you will miss the market. All right, everybody. So I have always said to you, I want you to continue to dollar cost average into this market
Suze: mainly into the Vanguard total stock market index ETF for all the kinds of diversification that you need because right now if you had been dollar cost averaging into that, not only would you be diversified, but their top holdings happen to be all the stocks that are skyrocketing right now.
Suze: So you get to participate that way. For those of you who want to participate in the energy sector, whether it was from the XLE ETF or you wanted a larger dividend with either pioneer or Devin. And now energy is absolutely being obliterated and it could absolutely go down even more.
Suze: Right. There are many things that are causing that at this moment in time.
Suze: But long term, you have to remember what happened to energy before
Suze: Energy, when we first started to buy the energy stocks back in 2020 in March, they were all the way down, then they went all the way up. Chances are they will come all the way back down again. But why are we buying them mainly? We're buying them. Remember for the dividend and even if they cut the dividend, it's still a larger dividend,
Suze: whatever they may cut to. And I'm not saying they're going to cut it by any means, then you could get anywhere else. So you have to feel good about that or as I said to you before, then you shouldn't be in them.
Suze: If you can't stand them going up or down, that is not the correct investment for you.
Suze: But just to remind you people who held on to Apple that went all the way up, then all the way back down and now it's coming back up again. Same thing with Microsoft, same thing with Meta, whatever it may be. Netflix, it's still not anywhere close to where it was, but coming back up again,
Suze: you hold on to good quality stocks for the long run and you go through their cycles with them and it's easier to go through their cycles with them when they happen to be paying you a dividend. That's just something for you to think about. All right. So I hope you have the temperament to be doing that.
Suze: But your personal financial life, everybody is not just about the money that you have invested. It's about the other things that you are doing with your life.
Suze: Are you taking out home equity lines of credit? Are you getting yourself into credit card debt? Do you have a will? Do you have a trust? Do you have the must have documents? Do you possibly have long term care insurance or not? What is the title that you own your home in? What are you doing about your student loans? What are you doing about what kind of retirement account you have, regardless of what you have invested in the retirement account?
Suze: It's like, what are you doing with your whole financial life? Which is far more than what? Just your 401k portfolios or your stock portfolios.
Suze: The biggest mistakes people make is that they ignore everything else about their finances and they only concentrate on their money that's going up and down. If you do that, it will be one of the biggest mistakes you have ever made. All right. And maybe next week I'll give you an example of that. Anyway,
Suze: those are the things that I wanted you to know about. Number one, Series I Bonds. And should you consider cashing them out or not, depending on your circumstance. on the certificates of deposit at Alliant Credit Union. By the way, if you're interested, you would go to my alliant A L L I A N T dot com slash ultimate. That's where you could find out about certificates of deposits
Suze: and last but not least how I feel about the markets and things that are going on.
Suze: So there you go. So until Thursday when Miss Travis is back with me for another Ask KT and Suze Anything, there's really only one thing that I want you to say every single day and that is today. Wherever I go, I will create a more loving, peaceful and joyful world.
Suze: I sometimes like to switch them around anyway. And if you do that, I promise you you will be unstoppable. Bye bye everybody.
Music: Music (Out).
Get Suze’s special offers for podcast listeners at suzeorman.com/offer
Join Suze’s Women & Money Community for FREE and ASK SUZE your questions which may just end up on her podcast!
To ask Suze a question, download by following one of these links: