Securities issued by the U.S. federal government, or Treasuries, are considered to be among the safest investments. Among the U.S. Treasuries options, the I series savings bond pays a fixed interest rate plus a rate that changes twice a year based on the consumer price index (CPI).
Series I bonds mature in 30 years and are designed to earn interest and protect investors from inflation. As of May 2022, the initial interest rate was 9.62% through October 2022, the highest since it was introduced in 1998 as a result of inflation. That is a combination of a 0% fixed rate and an inflation rate of 9.62%.
Series I bonds can only be purchased directly from the U.S. Department of the Treasury in two ways: through TreasuryDirect.gov or by using your federal income tax refund. Learn how the buying process works, what the limits are, and when you should consider I bonds.
Key Takeaways
- I bonds can only be purchased directly from the U.S. Department of the Treasury.
- I bonds have a purchase limit of $15,000 per year, per Social Security number.
- I bonds offer investors safety, tax benefits, and an inflation hedge.
How Buying Series I Savings Bonds Works
Series I bonds can be purchased in two forms: electronic and paper. I bonds are purchased at the face value. Interest accrues to the bond monthly, and interest is compounded twice per year.
Types of I Bonds
You can buy electronic I bonds online through the U.S. Department of the Treasury site TreasuryDirect.gov. Electronic bonds are registered and tracked entirely online, and there is no physical certificate. You can buy electronic bonds with any money, but paper I bonds can only be bought with your income tax refund.
I Bond Minimum Purchase
You can only buy a limited amount of I bonds. Electronic I bonds have a maximum limit of $10,000 per year, and paper bonds that use your tax refund have a maximum limit of $5,000. The total limit for series I bonds is $15,000.
Selling Your I Bonds
Series I bonds can only be cashed in. They can’t be sold on the secondary markets. I bonds can be cashed in anytime after the first 12 months, but there is a penalty of the previous three months' worth of interest if the bond is less than five years old.
Buying Series I Bonds Through TreasuryDirect
The first step for buying I bonds electronically is to open a TreasuryDirect account. Go to TreasuryDirect.gov and select “open an account.” You’ll need your Social Security number, driver’s license or other state-issued ID, and banking information.
After you have completed the application, you can make a purchase. Go to the “BuyDirect” tab and select “Savings Bonds.” Complete the specifics of the buying process according to your needs.
The Bottom Line
Series I bonds are a low-risk, convenient way to invest your money and add an inflation hedge to your portfolio. The limits to how much you can invest in I bonds apply to individual Social Security numbers. So families can potentially put aside considerably more than the individual limit.
I bonds also offer tax benefits. I bond interest is exempt from state taxes, and federal income tax isn’t paid until the bond is cashed in. Taxpayers may be able to exclude a portion of I bond interest if it is used for education expenses.
Frequently Asked Questions (FAQs)
When should I buy Series I savings bonds?
I bonds may be good alternatives to CDs if you’re saving for a home or other major purchase where preserving your funds is a high priority. I bonds can be cashed in anytime after the first year, and after five years, there is no interest penalty. Unlike CDs, interest on series I bonds is income-tax deferred and exempt from state taxes. I bonds may also be good choices for education savings. Taxpayers may be able to exclude a portion of I bond interest if it is used for education expenses.
How do I buy series EE savings bonds?
Series EE savings bonds are only available in electronic form. They can only be purchased and redeemed online at TreasuryDirect.gov. EE bonds can be purchased in any amount over $25. There is a limit of $10,000 per year, per Social Security number.
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As an avid financial enthusiast with a deep understanding of investment instruments, I am well-versed in the intricacies of securities issued by the U.S. federal government, particularly the renowned U.S. Treasuries. My expertise extends to various Treasury offerings, and I have a particular focus on the I series savings bond, a unique investment vehicle designed to provide both stability and protection against inflation.
The article you've presented touches upon several key concepts related to Series I Savings Bonds. Let's break down the essential components and delve into the intricacies of this investment option:
1. Security of U.S. Treasuries:
- U.S. Treasuries, including Series I savings bonds, are considered one of the safest investments due to their backing by the federal government.
2. Series I Savings Bonds Overview:
- Series I bonds offer a fixed interest rate combined with a semi-annual variable rate linked to the Consumer Price Index (CPI).
- These bonds mature over 30 years and are designed to protect investors from inflation.
3. Interest Rates and Inflation:
- As of May 2022, Series I bonds had an initial interest rate of 9.62%, the highest since their introduction in 1998.
- The interest rate is a combination of a 0% fixed rate and an inflation rate of 9.62%, providing a hedge against rising prices.
4. Purchase Process and Limits:
- Series I bonds can only be purchased directly from the U.S. Department of the Treasury through TreasuryDirect.gov or using a federal income tax refund.
- There is a purchase limit of $15,000 per year, per Social Security number.
5. Types of I Bonds:
- I bonds are available in electronic and paper forms.
- Electronic bonds, purchased online, have no physical certificate, while paper bonds are bought using income tax refunds.
6. Minimum Purchase Limits:
- Electronic I bonds have a maximum annual limit of $10,000, and paper bonds using tax refunds have a limit of $5,000. The combined limit is $15,000.
7. Selling I Bonds:
- I bonds can only be cashed in and cannot be sold on secondary markets.
- There is a penalty of the previous three months' interest if the bond is cashed in before five years.
8. Buying Process Through TreasuryDirect:
- Opening a TreasuryDirect account is the first step for electronic purchases.
- After completing the application, users can buy I bonds through the "BuyDirect" tab on the TreasuryDirect website.
9. Benefits and Tax Implications:
- Series I bonds offer safety, tax benefits, and an inflation hedge.
- Interest is income-tax deferred, and there are potential tax benefits for education expenses.
10. Frequently Asked Questions (FAQs):
- FAQs address when to buy Series I bonds, suggesting their suitability for savings goals and education expenses.
- Information on Series EE savings bonds is also provided, emphasizing their electronic-only availability and purchase limits.
In conclusion, Series I savings bonds emerge as a low-risk, convenient investment option, especially for those seeking a balance of safety, tax advantages, and protection against inflation. The detailed breakdown of the purchase process, limits, and tax implications provides investors with a comprehensive guide to incorporating Series I bonds into their financial portfolios.
