Series I bonds are a tempting proposition for investors looking for protection against inflation. The government bonds currently pay a solid 6.89 percent yield. And that figure is adjusted to inflation so if prices rise still further, investors can earn a higher rate than even what they get now. Not surprisingly, this inflation protection has made Series I bonds attractive to savvy investors.
“There is one place to hide from inflation – Series I bonds,” says Don Parker, a former chief risk officer and chief information officer at BOK Financial.
The key downside has been that individuals are limited to buying $10,000 in Series I bonds each year. But individual investors actually have a way around this limit, letting them double- or even triple-dip (or more) their investment in Series I bonds – but almost no one knows about it.
Here’s how to invest even more in Series I bonds and other unknown secrets of these bonds. (If you already know you want to purchase Series I bonds, here’s how to buy them.)
The secret to investing more in Series I bonds
Series I bonds can be a really attractive investment right now, but let’s quickly recap why, before showing you how you can buy more than the typical $10,000 annual limit.
The Series I bond currently pays 6.89 percent interest, and the rate adjusts semiannually in May and November. If inflation rises, the bond has a variable component that moves the bond’s yield higher. Of course, it works the other way, too, and the rate has recently fallen from 9.62 percent, as inflation slowed somewhat. On top of that, investors will only pay tax at the federal level and can legally sidestep state and local taxes on Series I bonds. And with the backing of the U.S. government, investors have as safe a way to invest as exists.
“The Series I bond is riskless,” says Parker. “There’s no principal risk here, regardless of where interest rates go.”
“And the rate never goes below zero,” he says. “There’s a rate cap on the downside and no rate cap on the upside, so your principal is perfectly protected against inflation.”
Normally, you’re limited to purchasing $10,000 per person on electronic Series I bonds per year. However, the government allows those with a federal tax refund to invest up to $5,000 of that refund into paper I bonds. So most investors think their annual investment tops out at $15,000.
But that’s incorrect, and investors can actually invest tens of thousands more, say Parker and others.
“The $10,000 limit is per entity, not per person,” says Parker. “You can have as many entities as you want.”
That is, if you have a business, that business can also purchase Series I bonds up to the $10,000 annual limit. That works if you’re running a sole proprietorship or even a side hustle. It can also include other kinds of entities such as trusts or even limited liability companies (LLCs). An LLC is a popular way among landlords to legally organize a series of rental properties.
“In many states there are low-cost ways to set up an LLC,” says Parker. “And that LLC is a separate entity from you, even if you share its Social Security number and a bank account.”
For example, Parker outlines a way that you could open many LLCs for a nominal fee. Then you can go to TreasuryDirect – the site for buying government bonds directly – and open an account for the entity. Buy the maximum amount of $10,000 in each account and enjoy risk-free income.
Parker says it’s not even necessary to get a separate tax ID (known as an EIN) for each entity. But other experts disagree, and say that it’s important that the business is clearly separate from you as an individual.
A tax ID for the business is vital, says Morris Armstrong, a registered investment advisor at his own company in Cheshire, Connecticut. He says that the Treasury looks at these accounts by EIN, but that in principle there’s no issue with having multiple entities and maxing out each.
“There would be nothing preventing someone from creating multiple trusts and doing it, either, except for the cost,” says Armstrong.
Parker says that between opening the LLC and then setting up the account for the entity on TreasuryDirect and funding it, it should take less than 10 minutes total.
“I suspect this will be like no other investment opportunity that I’ve seen in my lifetime over the next two or three years,” says Parker.
Armstrong is a little less optimistic, but does say that it “could be a reasonably attractive deal after a year,” once you factor in the expenses of setting up everything.
Risks of buying multiple Series I bonds
Investors looking to use this method should keep good records that document any entities that they’re using to purchase Series I bonds. You’ll need to be organized and maintain account numbers for every entity that you’re using. And if you’re not setting up separate tax IDs for each business, even if you set up an LLC, you may be running a risk that the Treasury calls you on it.
Parker himself has used this approach to set up multiple LLCs and buy up to the $10,000 limit for each entity. His strategy was spotted by Treasury officials, who questioned how he had purchased so many Series I bonds in a single year and were suspicious that these LLCs did actually exist. Parker says he showed them the proper legal paperwork validating them.
If you’re looking to set up multiple LLCs, it can be worthwhile to look around at which state offers the lowest cost. Not all states charge the same amount, says Parker, who highlights Michigan as a state that charges relatively little to establish the legal entity. You’ll want to keep costs low, so you don’t eat away at your returns, but Parker says you can set one up for $50, if you look.
Of course, there are other issues with investing significant amounts of money into a single type of bond. While the Series I bond eliminates principal risk and inflation risk, investors must keep their money locked up for at least a year. You simply won’t be able to sell the bond before then. So if there’s any chance you’ll need the money before a year, the Series I bond is not for you.
And if you sell the bond within five years of purchasing it, you’ll have to pay a penalty of three months’ interest. However, if inflation calms down, that penalty will decline as well. Of course, if inflation does fall to more normal levels, it makes the Series I bonds much less attractive, too.
“I think that a lot is being made about the I bonds, which were not a significant instrument until inflation hit hard, and now people want to pile in,” says Armstrong.
Before you begin with this approach, it could be worthwhile to consult a financial advisor so that you have all the details ironed out and fully understand the risks.
Bottom line
Series I bonds are an attractive investment option right now. Investors looking to take advantage of their high yield should act soon, so they can capture the high rate currently on offer. However, even though rates on the Series I bond declined in November, few investors expect inflation to suddenly come to a halt, giving you an extended period of high interest rates with a low-risk government bond.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
FAQs
Note: The three purchase limits above apply separately. That is, in a single calendar year you could buy $10,000 in electronic Series EE bonds, $10,000 in electronic Series I bonds, and $5,000 in paper Series I bonds.
Can I buy more than $10000 in I bonds? ›
A given Social Security Number or Employer Identification Number can buy up to these amounts in savings bonds each calendar year: $10,000 in electronic EE bonds. $10,000 in electronic I bonds. $5,000 in paper I bonds that you can buy when you file federal tax forms.
Can married couples buy $20000 in I bonds? ›
$10,000 limit: Up to $10,000 of I bonds can be purchased, per person (or entity), per year. A married couple can each purchase $10,000 per year ($20,000 per year total).
Can I buy $15000 in I bonds? ›
Purchase prices start at $25, and you can buy in any amount above that up to $10,000 per person, per calendar year. You also can buy an I bond in paper form, through the Tax Time Purchase Program.
How can I buy more than $10000 in I bonds through this loophole? ›
Use Your Tax Refund
Although each individual can only purchase $10,000 in I bonds each calendar year, there's a loophole: Those who use their federal income tax refunds can buy an additional $5,000, bringing the total to $15,000.
What is the downside of an I bond? ›
I Bond Cons
The initial rate is only guaranteed for the first six months of ownership. After that, the rate can fall, even to zero. One-year lockup. You can't get your money back at all the first year, so you shouldn't invest any funds you'll absolutely need anytime soon.
Can I buy 100000 worth of I bonds? ›
2022 Annual Purchase Limits
As of October 2022, each individual entity can purchase up to $10,000 worth of Series I bonds in a year. All bonds must be registered electronically through TreasuryDirect.
Can I buy multiple I bonds at the same time? ›
If you have enough money in your refund, you can buy multiple bonds and, if you wish, you can give them multiple registrations. You may buy up to $5,000 in paper savings bonds with each year's tax refund.
Can you loose money on I bonds? ›
No, I Bonds can't lose value. The interest rate cannot go below zero and the redemption value of your I bonds can't decline.
Can my wife and I both buy 10000 I bonds? ›
“The $10,000 limit is per entity, not per person,” says Parker. “You can have as many entities as you want.” That is, if you have a business, that business can also purchase Series I bonds up to the $10,000 annual limit.
inflation rate can vary. You can count on a Series I bond to hold its value; that is, the bond's redemption value will not decline.
Can husband and wife buy I bonds together? ›
The limit for purchasing I bonds is per person, so a married couple can each put up to $10,000 in the investment annually, or up to $15,000 each if they both also elect to get tax refunds in paper I bonds. Families with kids can also invest up to the annual limit on behalf of each child.
What is the advantage of investing $20000 in a Series I US Savings Bond? ›
Series I bonds do offer some tax advantages, too. Interest on the bonds is exempt from state and local taxes, though you'll still have to pay federal taxes on the gains. And using the interest to pay for higher education may help you avoid paying federal taxes on the interest income, too.
How often can I buy Series I bonds? ›
Series I savings bonds, or I bonds, are linked to inflation, helping to protect against rising costs. You can buy I bonds as often as you'd like! However, you can't buy more or be gifted more than a total of $15,000 in I bonds per year.
Are I bonds good for high income earners? ›
This means that I Bonds are an extremely tax-efficient savings vehicle, especially for high income earners as a buyer can defer taxation for up to 30 years.
What is the catch with I bonds? ›
The catch with I Bonds, which you can hold on to for up to 30 years, is this: You may not cash it out in the first year. And to get the full amount of interest owed, you have to hold the bond for at least five years. Otherwise, you will sacrifice three months of interest.
Is there a risk to Series I bonds? ›
Any security offered by the U.S. Treasury has nearly zero risk of default, and, as noted above, I bonds offer attractive tax benefits. Their interest payments, for instance, are exempt from state and local taxes, and they may be entirely tax free if used to pay for college tuition and fees at an eligible institution.
What are the risks of Series I bonds? ›
Series I bonds are considered low risk since they are backed by the full faith and credit of the U.S. government and their redemption value cannot decline. But with this safety comes a low return, comparable to that of a high-interest savings account or certificate of deposit (CD).
Is buying I bonds a good idea right now? ›
Despite that reduction, I bonds are still an investment worth owning. And if you haven't purchased any this year, it could pay to add some to your portfolio before 2022 wraps up.
Are I bonds tax free? ›
Interest earned on I bonds is exempt from state and local taxation, but owners can also defer federal income tax on the accrued interest for up to 30 years.
Still, it's hard to beat I bonds right now, according to Zigmont. “An effectively risk-free return of 6.89% is still attractive after making it through 2022,” he said. “I bonds are a way to have some safety.”
How do I buy a lot of I bonds? ›
The main way is to go online using TreasuryDirect.gov, and the I bonds bought through this website are digital. There's also an entirely separate way to purchase paper I bonds.
...
Buying I bonds digitally
- Open an online TreasuryDirect account. ...
- Log in to your TreasuryDirect account. ...
- Buy your digital I bonds.
Bonds, especially bonds from governments and major companies, also tend to be a safe investment. They can also offer much higher return than savings accounts. In exchange for the higher return, you give up flexibility because you cannot redeem bonds at any time.
Can husband and wife share a TreasuryDirect account? ›
Yes. The owner can transfer EE and I Bonds to another person with a TreasuryDirect account; however, you must wait five business days after the purchase date to transfer the bonds.
Can I buy I bonds for my wife and kids? ›
Only Series I savings bonds are available in paper. Paper Series I savings bonds come in 5 denominations: $50, $100, $200, $500, and $1,000. The only way to get a paper savings bond is to use your IRS tax refund. With your tax refund, you can buy savings bonds for anyone (yourself, your child, or as a gift to anyone).
How many I bonds can I buy as a gift? ›
While each individual can purchase only $10,000 in I bonds for themselves per year, you can buy multiple I bonds as gifts for others. There's a $10,000 maximum per recipient for each purchase, but there's no limit to how many recipients you have and no limit on how often you can buy bonds for the same recipient.
What happens to Series I bonds when inflation goes down? ›
If inflation drops, the rate of the Series I bond is likely to drop. “Note that while the inflation rate is adjusted every May and November, the interest rate on your particular bond will be updated on a six-month schedule, based on the issue date,” says Jones.
Do Series I bonds beat inflation? ›
Series I savings bonds are conservative, safe investments that rise and fall with inflation, and they're earning far more than the best high-yield savings account or certificate of deposit.
How long can you hold Series I bonds? ›
You can cash in (redeem) your I bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest. For example, if you cash in the bond after 18 months, you get the first 15 months of interest.
What happens to an I bond when the owner dies? ›
A survivor is named on the bond(s)
If you are the named co-owner or beneficiary who inherits the bond, you have different options for paper EE or I bonds and paper HH bonds. If only one person is named on the bond and that person has died, the bond belongs to that person's estate.
A married couple must open two separate TreasuryDirect accounts if both spouses wish to purchase I Bonds. Each account is limited to purchasing $10,000 per person per calendar year, so if you want to purchase $20,000 in a year, you need two accounts.
How long does it take for I bonds to mature? ›
SERIES I BONDS ISSUED SEPTEMBER 1998 AND THEREAFTER All Series I bonds reach final maturity 30 years from issue. Series I savings bonds earn interest through application of a composite rate.
Are I Bonds better than CDS? ›
Consider the goals you have for you money to help you decide. If you'll need that money in the next five years, a certificate of deposit is a wiser choice. For longer-term saving goals, Series I Bonds may be a better option.
Are Series I bonds a good investment for seniors? ›
I bonds can be an excellent addition to a retiree's fixed income allocation. With built-in inflation protection and low-risk levels, they're a beneficial way for retirees to beat inflation without risking short-term losses like investing in the stock market.
Are I bonds good for seniors? ›
Generally speaking, if you want to earn more interest, you'll need to take on more risk — and for many retirees, that's not a good option, either. You can safely earn far more with I Bonds, a type of savings bond issued by the U.S. Treasury, and protect against future high inflation.
How frequently can I buy I bonds? ›
Normally, you're limited to purchasing $10,000 per person on electronic Series I bonds per year. However, the government allows those with a federal tax refund to invest up to $5,000 of that refund into paper I bonds.
Can I buy I bonds multiple times? ›
If you have enough money in your refund, you can buy multiple bonds and, if you wish, you can give them multiple registrations. You may buy up to $5,000 in paper savings bonds with each year's tax refund.
How many bonds can I buy in 2022? ›
The limit for purchasing I bonds is per person, so a married couple can each put up to $10,000 in the investment annually, or up to $15,000 each if they both also elect to get tax refunds in paper I bonds. Families with kids can also invest up to the annual limit on behalf of each child.
