Some interesting charts on this page. The 7.12% rate consists of a 0.00% fixed rate and a 3.56% inflation rate.
The formula is:
Composite rate = [fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]
7.12% = [0.0000 + (2 x 0.0356) + (0.0000 x 0.0356)]
This rate is only valid until the inflation rate gets re-adjusted after 6 months. There is an interesting chart showing what the fixed rates and inflation rates have been throughout the history of this bond.
For those considering investing in this, there is a $10,000 max per eligible person. Eligibility includes:
1) United States citizen, whether you live in the U.S. or abroad.
2) United States resident.
3) Civilian employee of the United States, no matter where you live.
I'm sure you know this so this comment is more for the casual reader: "I bonds earn interest for 30 years unless you cash them first. You can cash them after one year. But if you cash them before five years, you lose the previous three months of interest."[1]
Worth keeping in mind these aren't really short-term investment vehicles. But earning 2x inflation rate is pretty decent for a low-risk investment.
> But earning 2x inflation rate is pretty decent for a low-risk investment.
Maybe you mean this anyway, but your statement could be misunderstood: One doesn't earn twice the inflation rate. It is multiplied by two to give an annual rate that can then be combined with the annual fixed rate. When calculating the coupon, you would of course have to adjust for half a year.
These are a good place to store your emergency fund (assuming you roll your money into them 10k at a time, so that you have short-term liquidity when needed.)
No "economic" indicators such as government statistics per se.
The supply chain looks ready to collapse, along with public confidence in all of our institutions. History doesn't repeat, but it sure is rhyming, quite loudly right now.
There are many many months of rent and utility bills that haven't been paid. Due to the massive shift to remote work, commercial office space is likely to experience a 50% or more occupancy drop (maybe even worse?). Our large urban centers have a funding model that is suddenly unsustainable if this happens.
Everything to me, at least, is screaming danger, danger Will Robinson.
Great Depression as ALL about deflation, we see inflation right now. Which will be painful, but since all countries are seeing inflation its likely just driven by costs in production.
If we huge inflation, then all these expensive mortgages people stretched for the last few years will be super cheap, so all of a sudden majority of Americans will be out of debt, for example.
All those empty commercial properties instead of foreclosing will simply rent home out for "low rent" purposes like gyms, but that low rent in inflated terms will cover the cost of their lease/mortgage.
It could be messy, and will need support from many players, but I don't think we are looking at a Greater Depression.
We would not be "in the Cater [sic] Years" regardless. The lowest inflation reported in the late 70's was about 5%, with a peak at 15%. Last year's post-covid number was 5.4%.
Your point seems mostly like demagoguery. I think the more interesting question is... is 5% actually bad? There's a real argument to be had here that rapid inflation reflects genuine improvements like rising wage levels and that it's worth paying for. Remember that the "biggest losers" in inflationary economies are people who hold assets, not investors (whose returns accomadate faster than things like loan terms) or wage workers (who don't have significant assets to depreciate and whose wages track inflation well).
Exactly. As a well to do tech person, the impact of 10% inflation is nil when my retirement funds returned 25%.
Now if I was some über rich dude with millions of capital tied up high friction investments, forced to choose between paying capital gains taxes or losing to inflation, i may feel differently.
Frankly, we need to put shitty businesses that exist by virtue of low interest rates out of business. It should not be feasible to buy thousands of single family homes as investment property, for example.
That's almost exactly backwards, where are you getting this? The big inflation driver right now is (1) the increase in liquid cash in the economy due to covid relief programs and (2) the higher wage levels needed to get people to work during a pandemic.
The "poor" are, in fact, doing significantly better (economically, anyway) now than they were in 2019. I'll have to go look it up, but there was a great blog post a few months back looking at poverty statistics over the pandemic. The relief bills helped a ton.
Those are transitory, and even if they become permanent, never forget, inflation is a compounding process, so to keep up there must be the political will to re-up them. Moreover, the irony is that the way to fund the relief bills is to create more inflation.
You are advocating putting all of society on an accelerating treadmill that pushes people backwards towards poverty.
Joe and Jill? What about your unemployed person, formerly-middle-income retiree on fixed salary, homeless person surviving by panhandling, nonprofit serving the poor/homeless...
Inflation is nothing but fucking over the people who can handle it the least.
Poor people are debtors: Inflation is a huge positive for them! If I owe $10,000 of credit card debt at a nominal 25% APR, I am praying for that hyperinflation to kick in soon.
It’s like has prices. They go up before the new delivery is in the grind tanks, but goes back down way after the expensive gas in the ground was all sold.
Note that how we calculate inflation has actually changed since the Carter Years - most importantly the substitution of housing in the inflation basket with OER (owner-equivalent rent).
If we had the previous inflation measure (same as 1970s), CPI would be closer to double digits now (because of housing appreciation over the last year).
True enough, though if the modern real estate market had existed in the 70's then "inflation" would have been something closer to 30-40%.
Like it or not "home values" decoupled from "housing costs" over the past two decades. The reason for that metric change was to preserve equivalency, you don't get to argue backwards because of it.
Even those with COLAs. See, prices go up, and then, later, the COLA adjustment kicks in. It still hurts those who get COLA adjustments, just not as bad as it hurts those who don't.
Only if you own paper debt assets like bonds. If you own dividend paying stock or property you are going to be fine. If you buy stock in a company with a heavy debt load that is slowly digging it’s way it (not sure they exist) you might come out a big winner
This is widely stated, but only barely accurate sentiment.
First, index funds do good at 1 thing - which is provide "market returns". Market returns is basically defined by an index, so naturally the definition is circular. The parent mentioned dividends, which are not the normal target for investors (but useful for retirees and others who want an "income" from investment). Dividend stocks may do worse at beating market returns, but better at income generation.
> But the biggest losers overall are those with fixed incomes dealing with rapidly rising prices.
And therein lies one of the big pseudo-centrist points here. A mild reduction[1] in fixed-rate entitlement programs is coming down the pipe at some point regardless. This essentially gets the hard part of that political calculus out of the way "for free" (or at least in a cheaper way, since you can blame covid).
[1] Contra the nutjobs who predict the Death of Social Security or whatnot.
> This essentially gets the hard part of that political calculus out of the way "for free"
No, if anything it hastens having to deal with the hard part, since SS benefits are wage indexed during employment and CPI-indexed in retirement, not fixed. Inflation drives up the nominal $ cost for current retirees, and, ceteris paribus, hastens trust fund depletion.
I don't think the financial system of the 70s is the same financial system of the 2000s. We were were also pouring a lot of resources into countering the 'second world' including the Vietnam war, missile defence, etc. add to that the 'oil shock.'
As far as I can recall, the current system is 'calibrated' for 2-3% annual growth. 5-8% is entering the banana republic inflation zone. You, know, where they'd have to 'devaluate' their currencies to make up the difference?
> As far as I can recall, the current system is 'calibrated' for 2-3% annual growth. 5-8% is entering the banana republic inflation zone.
This is simply untrue. Like not even close the definition of hyperinflation used by economists. Hyperinflation is a monthly inflation rate of 50%, or 12974.63% annually.
Hyperinflation is Zimbabwe or Brazil during some periods. That's not what I'm comparing it to.
High inflation is what we had during the Carter years. People who lived though it say it was awful. Five per-cent may be on the cusp, but 8% is getting up there where it eats up a wage earner's buying power.
If you’re not comparing the United States in 2021 to countries where the entire economy has collapsed due to inflation, then why are you using terms like “banana republic”? You could have used the 1970s if you meant the the 1970s, which as someone that barely remembers it, was not a “banana republic”.
Bill Maher has expressed frustration with lockdowns throughout the pandemic. That he holds the view you mention does not seem surprising or remarkable to me.
(He also seems like an unusual choice to bring in as an authority on this topic. He is primarily a comedian.)
We first embraced hard lockdowns. No cost was high enough if we could contain covid if only just a little bit. Then we turned to vaccines as a miraculous path back to a life resembling normal. As the vaccine performance falters (*), I'm uncomfortably curious to see which way the world will go.
(*) According to FDA/CDC and Israel, which are promoting the 3rd boosting shot in less than a year and anticipating the 4th.
It meant what I thought it meant. The adjustable interest rate on these has been much, much better than alternatives for a long time. Now it is even better.
you mean, once the "inflation number" goes back to normal.
Inflation (supply of money) has been high [0] for literally decades. It won't get lower for a long time. It may never EVER go "back to normal." Normal would put us in a very bad macroeconomic position relative to all other nations. Why would we, the purveyor of the Petrodollar, do that?
I find it useful to refer to "price inflation", "monetary inflation", and "asset inflation" to distinguish between them all. Monetary inflation may or may not create asset inflation and or price inflation depending where it flows.
Interesting. Are the inflation rate and inflation not causal with one another? I feel a bit ignorant now having always assumed they are essentially the same thing. Amount of new money printed.
I Bonds are inflation protected bonds, so the context here is that the high yield on these bonds reinforces the reality that inflation (whether temporary or long-term) is here.
> the high yield on these bonds reinforces the reality that inflation (whether temporary or long-term) is here
Savings Bonds aren't traded. Their yield is calculated by the Treasury from the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy. As such, it offers no more information into the future course of inflation than the CPI-U itself.
The data you're looking for are the 10-year breakeven inflation rates [1], which ares calculated from the premium the market places on the Treasury's tradable inflation-protecting bonds [2] and its tradable standard bonds.
So I registered for an account just now. Most interesting part was when I had to login. You have to use a Web UI keyboard (i.e. buttons arranged in a keyboard), to key in the password. I use a pw manager, so that would be annoying.
Ended up doing inspect element, and deleting the readonly attribute. That worked. Super weird.
I'm kind of an idiot with anything terribly elaborate in the financial world, so forgive a bit of a dumb question: what are the downsides to bonds instead of using something like a CD?
> I'm kind of an idiot with anything terribly elaborate in the financial world, so forgive a bit of a dumb question: what are the downsides to bonds instead of using something like a CD?
CDs, TIPS (Treasury Inflation Protected Securities), MBS (Mortgage Backed Securities), Munis, Corporates... these are all so called "debt instruments".
Your question is roughly equivalent to "What is the downsides to investing into Stocks instead of AAPL??" Well... sometimes AAPL goes up, sometimes it goes down. Stocks are... well... AAPL -IS- a stock.
Similarly, CDs are typically a specific kind of bond: the type you get from a bank. But banks also sell traditional bonds.
--------------
The main benefits of CDs is that they're (usually, but not always) FDIC insured. So if the bank goes bankrupt, the US Government steps in and will give you your money back.
The main benefits of "bonds" (which are a very, very broad category consisting of literally thousands, maybe millions of different things)... is that typical bonds can be sold on the open market.
That means that if the interest rates go down, you can sell bonds at a higher price. (Look, I have a 5% bond, and all you suckers are stuck getting 0.5%. Feel like trading? I'll sell you my $10,000 5% bond to you for $11,000.)
Of course, if interest rates go up, then bonds lose value. (Shoot, I have a 0.1% bond and everyone else has 0.5% bonds. I don't want to be stuck with this anymore, feel like buying this $10,000 bond off of me for $8500?)
I bonds in particular cannot be cashed out before 12 months, and before 5 years there is a penalty. Bonds are not covered by FDIC insurance and can default (though less relevant for US Treasury bonds which can print USD and more relevant for corporate/foreign bonds).
I bonds in particular are closer to a CD and are not transferable. If you have access to credit, you could borrow and pay it back once your I bond matures is cashable. Other Treasury notes can be sold, though if rates go up you may get back less than your principal, particularly on the longer duration notes.
Treasury rules? No redeeming for 1 year, and redeeming before 5 years means you lose the last 3 months of interest. You can gift them to other people though.
I'm not an expert either, but the two differences that come to mind are:
CDs are FDIC insured, bonds aren't. This doesn't make a big difference when we're talking government bonds, but you can lose your shirt on a regular corporate/muni bond. You'll always get CD money back (subject to 250k FDIC limit)
Bonds also are also an asset that fluctuates in price: A bond can be sold at a price different from it's face value. This means that if interest rates rise, you're going to not be able to sell the bond for the same price you've bought it for. This is because you need to make up for the lower interest rate. CDs are just basically a loan on cash. Bonds are an asset (not cash!) that pays interest.
FDIC insurance is backed by the US Government. US Saving Bonds are backed by… the US government. They can be redeemed at any time, subject to certain constraints. They are not tradable bonds — a TIPS bond would be the US government instrument that is tradable and inflation protected.
This is a pretty limited tool, but in the last year it's caught the attention of people dismayed by low CD and savings account rates.
In that context, the argument is that this can be a good place to keep an emergency fund, provided one has enough emergency cash in other places to bridge the first year before the I Bond can be first redeemed. The withdrawal penalty between years 1-5 is 3 months of interest, so not terrible if being withdrawn in an emergency.
No one's getting rich off this instrument, but it could be a good low hanging fruit option for some.
Nothing other than the fixed yield on savings bonds has been lousy for the last 15-20 years.
It’s backed by the full faith and credit of the US government and interest isn’t taxed until redemption, so it’s probably the safest/simplest investment for a retail saver that’s out there.
Bonds are not guaranteed like CDs. Bonds can fail. You could lose your investment. Even though they are a lot more safer than stocks, but they are still a risky investment compared to CDs.
It's not risk free because the interest rate is re-adjusted every six months. If inflation drops back below 3% before the withdrawal penalty period expires you'd be in the negative.
I bought one in the early 2000's, should be getting about 10% on it. The trouble with these is that the fixed rate has been 0% for some time now. If inflation does go down you could end up with a very low yielding bond. I forget what exactly it equates to on a yearly interest basis but series E bonds don't really pay squat until they hit the 20 year mark, at which time they are guaranteed to double. I wish when I was younger I had put the max into those each year I was able to, that's a nice little "pension" when you are older.
FYI, normal TIPS have the fixed rate well below zero (which makes the total yield add up to close to where the fixed rates bonds trade at, around 1-2%). These retail instruments are kind of no brainers if their fixed rate is artificially not allowed to drop below zero.
E bonds are guaranteed to double in value at 20 years, for a nominal (not inflation adjusted) ~3.5% return. They yield almost nothing before the 20 year term.
I think a lot of people who have never seen inflation think that 10% is "hyperinflation". Please look deeper into 20s Germany, 90s Eastern Europe, 2010s Venezuela, etc.
Inflation doesn't just go from 1% to 1000% in a year, it has its own growth rate and takes years to develop. If you're worried about inflation, you should be looking at yearly growth, like 5% this year, 10% 2022, 20% in 2023, etc. This became a problem in those places because for various reasons, those societies were utterly dysfunctional and could not react and contain it.
Cite for that? No one with any expertise has predicted a >7% inflation level that I'm aware of. This sounds like something you got from talk radio.
(Edit: two replies have taken this out of context. Savings bonds have a minimum term of five years (well, without penalty). For them to have a negative yield, we need to see aggregate inflation >7.12% over the next five years. That's nuts, sorry. No one is predicting that.)
This particular Bond yields current inflation levels:
"How is the interest rate of an I bond determined?
The interest rate combines two separate rates:
A fixed rate of return, which remains the same throughout the life of the I bond.
A variable semiannual inflation rate based on changes in the Consumer Price Index for all Urban Consumers (CPI-U). The Bureau of the Fiscal Service announces the rates each May and November. The semiannual inflation rate announced in May is the change between the CPI-U figures from the preceding September and March; the inflation rate announced in November is the change between the CPI-U figures from the preceding March and September."
So its fairly safe to assume that current inflation levels are indeed 7%.
Great, then surely you can cite me the source you used to predict that general inflation (not, ahem, some cherry picked real estate numbers) would be higher than 7% over the life of this bond, producing the negative interest you were teasing?
Not for five years they aren't! That chart ends in a few months. It's just reflecting CURRENT inflation rates. Again I ask, because everyone insists on cherry picking their way around this: Where is the source predicting a >7.12% inflation rate over the next five years? There is none. That's looney-tunes conspiracy nonsense.
Right, calling this some kind of talk radio conspiracy theory is completely ignorant. Go to the analysts at any major bank and see what they've got in their models. Or better yet, as you mentioned, go to the fed itself. And you KNOW, the fed is understating, not overstating those numbers.
Yeah that is one of the cases where the older generation really did have it way easier. Imagine having access to 15% CDs. I know 20% was out there too.
The flip side is that they were buying these things when other interest rates were also correspondingly high due to inflation, so they got hosed in other ways (think mortgages).
The fixed rate is 0% as has been the case. The inflation yield rate has been bouncy. This doesn’t seem as good as the title and comments are making it seem unless things stay this way. Table near bottom of page shows the inflation rate over time.
Edit: I agree this could be a sign of something long term
Edit: recent history of rates
--
Inflation rates
--
Nov 2021
3.56%
May 2021
1.77%
Nov 2020
0.84%
May 2020
0.53%
Nov 2019
1.01%
May 2019
0.70%
Nov 2018
1.16%
May 2018
1.11%
Nov 2017
1.24%
May 2017
0.98%
Nov 2016
1.38%
May 2016
0.08%
Nov 2015
0.77%
May 2015
-0.80%
--
Fixed Rates above 0 or .1%
--
Nov 2019
0.20%
May 2019
0.50%
Nov 2018
0.50%
May 2018
0.30%
The overall rate can't go below 0%
The formula is:
fixed rate + (2 * inflation rate) + (fixed rate * inflation rate)
So for these 6 months:
0 + (2 * 0.0356) + (0 * 0.0356)] = 0.0712
> This doesn’t seem as good as the title and comments are making it seem unless things stay this way. Table near bottom of page shows the inflation rate over time.
I wouldn't purchase these bonds for a number of reasons, but I do think it's worth noting that the case for today's inflation being something more than "transitory" is stronger than the case for today's inflation being "transitory".
Trying to navigate the environment today while looking in the rearview mirror is a good way to crash your portfolio.
I certainly wouldn’t put all my money into these bonds. But as an inflation hedge, it seems fine to toss in $10k per year (which is the maximum a person can easily buy anyway).
Combining the two rates
To get the actual rate of interest (sometimes referred to as the composite or earnings rate) we combine the fixed rate and the inflation rate, using the equation in the example below.
The combined rate will never be less than zero. However, the combined rate can be lower than the fixed rate. If the inflation rate is negative (because we have deflation, not inflation), it can offset some of the fixed rate.
If the inflation rate is so negative that it would take away more than the fixed rate, we don't let that happen. We stop at zero.
I have an Ally bank account. Over the past couple years, they've been great about religiously informing me of my interest rates dropping to almost zero. I see something like this and just have to laugh. When will I get my increase notification?
Yes, of course, this money isn't the same as that money. I just find the irony hilarious.
Credit card APRs are meaningless to me. I learned the hard way to never hold a balance on them. Yet another financial racket doomed to keep people poor. Those rates are absurd.
This is exactly why all the hate HN has for the crypto world makes me shake my head. There are people actively working on developing alternatives (DeFi) that while today are not perfect, from a technological perspective generally have the right motivation and direction.
There is absolutely no reason that people should be storing their money in a place that gets to use it however they want and charge you for that too. Never mind the endless printing and excessive taxation. Bankers aren't driving Kia's, but everyone else is.
From looking at the 2020 - 2021 breakdown, and if I am interpreting this correctly, the biggest single category change is in energy at almost 25% with a contribution of ~1.81% to the index.
This is not a great investment. It's pays it's base rate (0.0%) plus inflation (7.12%). The rate is based on inflation and is reset every 6 months, and I'm assuming the base rate of (0.0%) doesn't change. It may make sense for some people who are risk-averse and already have savings in a bank account that is getting demolished by low rates and high inflation.
Sadly Treasury Direct excludes U.S. citizens living abroad. If you do not have an address of record in the U.S. you may not create a Treasury Direct account. Interestingly though they have no such condition on taxation of my income in my current of permanent residence!
For those of us who were confused (like me), this is not a treasury bond, but a real return bond. It pays interest based on a posted rate, plus additional interest to cover inflation for a period. The inflation rate will change twice a year based on inflation.
It is a treasury bond, in that it's issued by the US treasury and therefore has the risk-free property. It just pays more than the open market rate for t-bills because it's a special product to subsidise individual savers.
The only risk is losing out on greater gains from investing in a higher yield asset. Keep in mind that the yield on these will probably drop in 6 months, since the dividend is adjusted semiannually. If inflation keeps going the dividend will stay high, but other assets will also appreciate due to inflation.
I have TreasuryDirect set up to purchase $X in I-bonds quarterly. It's been set and forget. I consider them the "medium term" component of my emergency fund, rather than an investment I expect significant yield from. They generally perform better than CDs, worse than corporate bonds, and are inflation protected. They're not too bad tax-wise either. The interest is subject to Federal income tax but not state or local tax. All of the above have their place in a well-diversified savings strategy.
The 7% is adjusted every six months to match inflation. The real inflation-adjusted yield on these is 0.0%. It’s better than cash, but has some short term redemption restrictions.
Because the fixed rate is based on treasurys and the inflation rate is based on inflation, they're essentially locked-in at zero truly real return. Which is not a bad 'floor' position for your portfolio!
7% on a bond is very good. 7.2% doubles every 10 years. For those of us getting older with lots of stock assets, we (conservative investors) want to transition to something safe so that smash-and-grab market fluctuation don't make us lose our money in retirement. Tiered bonds are something safe to do when you hit your mid 50's once the "thrill" of investing in what are today called "meme" stocks ("penny stocks" in the 80's/90's) has passed.
EDIT: S1 bonds apparently aren't fixed forever. Thanks Purple_ferret points out that part of the rate changes, as it is based on a fixed rate and the inflation rate. This is why I have an RIA to filter all my decisions.
From the web:
"Inflation rate
Unlike the fixed rate which does not change for the life of the bond, the inflation rate can and usually does change every six months.
We set the inflation rate every six months (on the first business day of May and on the first business day of November), based on changes in the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy.
However, the change is applied to your bond every six months from the bond's issue date. (The dates for these changes might not be May 1 and November 1.) When does my bond change rates?
"
People aren't reading the link and don't realize that it's 1. an I bond not a T bill and 2. Has a variable interest rate based on measured inflation that adjusts twice a year (the 7.12% in the title is the combined rate, so it can change during the term of the security).
It can beat inflation but only in a very certain/rare circumstance - inflation followed by deflation (since the nominal return on the bond can never drop below 0%).
For quite a long time now money has been cheap and there has been a lack of investments with good returns; i.e. you could get very safe investments at 1% return or less. 7% is a relatively huge yield for safe bonds (the standard US treasury 12month security rate seems to be 0.12% now, much lower), so it seems a bit surprising.
FWIW, you can get purchase[0] up to an additional $5000 a year in paper format if you overpay your Federal income taxes and request the refund be paid as a paper I-bond.
It also seems like you can pay an extra $5K in estimated tax in December, use the refund of it to buy a series I bond and then convert that to an electronic bond.
It proves nothing of the sort. The method they use to calculate the current rate is simple and immediate.
Furthermore, because these are the direct rates (e.g. for new bonds purchased from US government offerings), they're whatever the US government decides (in this case, CPI calculated).
What you're probably confusing is post-issue market bond rates, which would be indicative of the market's opinion of future inflation.
> We set the inflation rate every six months (on the first business day of May and on the first business day of November), based on changes in the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy.
Explainer from a different page: https://www.investopedia.com/best-savings-bonds-5196440 which had the rate of 3.54% as of August. Presumably it's shot up due to inflation estimates. In which case you should probably buy some immediately if you have spare cash and want a risk-free return and meet the other criteria.
I used to have the UK equivalent until the particular product was phased out, but it appears that a newer version is available.
There is no "one true inflation" but there are certainly better ways to look at it than CPI. For one get rid of all the hedonic adjustment nonsense, stop moving the goal posts by changing basket composition, and focus on small group of food, housing, and transportation. If you do that you are going to get a hell of a lot higher than 5%
There’s no one answer or methodology that answers all needs. CPI isn’t perfect but does capture a consistent and balanced view of inflation.
I know for my family, the only significant inflation factor is food. I have a short commute and fixed mortgage. For my family members who live in the exurbs, fuel costs are very impactful.
Rural inflation isn’t captured well because rural areas have been depopulating.
7.12% for Treasury bonds is great but you can get 17-21% with USDC stable coins (crypto).
On Kucoin you can make money by lending out stablecoins to margin traders. Here are some of the current rates:
Lend USDC for 7+ days: 17.52%
Lend USDC for 14+ days: 20.44%
Lend USDC for 28+ days: 20.80%
Margin lending is safer than most other forms of lending because margin loans are fully collateralized and if the borrower gets a margin call, their assets are auto-liquidated to pay you back. In the rare event that the system couldn’t get back all of the collateral, the difference is paid out from an insurance fund that about 10% of interest is paid into.
Benefits: 1) interest is paid out daily and can be (automatically) reinvested. 2) your investment can be pulled out in 7-28 days or less if the borrower pays you back earlier. 3) there is no interest forfeit penalty that these bonds have.
Drawbacks: I don’t think there is any 7% yielding asset in the world that is as safe as a US government bond.
Disclosure: I don’t do this myself, hold many bonds, or keep much cash. This is a financial suggestion but it is not a financial recommendation. Do your own research.
You're coming into a thread about ultra-safe treasury bonds to shill a risky, possibly illegal (in the US) crypto lending product. It doesn't add anything to the conversation - of course you can theoretically make more than 7% by taking on more risk.
Right now it yields 7.12% because the last inflation number was really high, but once inflation goes back to normal, the yield will be much lower.