Why I Bonds Are a Safe Investment (2024)

Should You Add Series I Savings Bonds to Your Portfolio?

Dana Anspach is a Certified Financial Planner and an expert on investing and retirement planning. She is the founder and CEO of Sensible Money, a fee-only financial planning and investment firm.

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Updated on October 20, 2022

Reviewed byGordon Scott

Fact checked by

Hans Jasperson

Fact checked byHans Jasperson

Hans Jasperson has over a decade of experience in public policy research, with an emphasis on workforce development, education, and economic justice. His research has been shared with members of the U.S. Congress, federal agencies, and policymakers in several states.

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In This Article

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In This Article

Supplement Your Emergency Fund
How To Buy I Bonds
TIPS vs. I Bonds
Tax Treatment of I Bonds
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Frequently Asked Questions (FAQs)

Series I savings bonds, or "I bonds" for short, come with guarantees, tax-deferred inflation-adjusted interest, and, after one year, liquidity.

Where else can you get guaranteed tax-deferred interest on a safe and liquid investmentwhile knowing that if interest rates go up, yours will also likely go up? That is what makes I bonds an excellent choice for a safe cash investment.

Key Takeaways

I bonds are a good cash investment because they're guaranteed and have tax-deferred, inflation-adjusted interest. They are also liquid after one year.
You can buy up to $15,000 in I bonds per person, per calendar year—that's in electronic and paper I bonds.
There is a minimum purchase of $25 for I Bonds.
I bonds accumulate interest, and you can cash them in during retirement to make sure you have safe, guaranteed investments available.
Interest on I bonds is a combination of a fixed rate and an inflation rate.

I Bonds Can Supplement Your Emergency Fund

I bonds make a great second-tier emergency fund. They're second-tier because you can't sell them within the first 12 months of purchase, so you'd need other liquid funds to rely on while you build up a stash of I bonds.

The most you can buy is $15,000 per person, per year; up to $10,000 in electric I bonds and $5,000 in paper I bonds. You can open an account directly with the Treasury Department through the TreasuryDirect website. There's a $25 minimum for electric bonds and a $50 minimum for paper bonds.

Interest earned on I bonds consists of both a fixed interest rate and an inflation rate. The fixed rate stays the same for the life of the bond, while the inflation rate is set twice a year. Interest is compounded semiannually and is tax-deferred.

When Does an I Bond Change Rates?
Issue Month	New Rates Take Effect
January	January 1 and July 1
February	February 1 and August 1
March	March 1 and September 1
April	April 1 and October 1
May	May 1 and November 1
June	June 1 and December 1
July	July 1 and January 1
August	August 1 and February 1
September	September 1 and March 1
October	October 1 and April 1
November	November 1 and May 1
December	December 1 and June 1

How To Buy I Bonds

You can open an account line with TreasuryDirect, link it to your bank account, and transfer money to buy the maximum amount of I bonds each year. The minimum amount to purchase an I bond is only $25. You can purchase paper I bonds directly with your tax refund each year. You can use all or a portion of your tax refund.

Note

Health care premiums and out-of-pocket costs could run you up to $300,000 during retirement. Depending on your age and the number of years until you plan to retire, I bonds could give you safe, guaranteed, inflation-adjusted investments available to cover medical costs in retirement.

TIPS vs. I Bonds

TIPS bonds (Treasury inflation-protected securities) are different from I bonds. Unlike I bonds, the interest on TIPS is not tax-deferred, so this vehicle may be best owned inside tax-deferred accounts like an individual retirement account (IRA) or Roth IRA. Unfortunately, you can't open an IRA account directly at TreasuryDirect, so TIPS in your IRA must be purchased through a brokerage account.

Tax Treatment of I Bonds

The taxable income on Series I bonds can be deferred until the time of redemption. With bonds that have been held for decades, it can add up. If the proceeds are used for higher education expenses, the bond can be excluded from taxable income. Otherwise, the interest you earn on your I bond is subject to federal income taxes; federal estate, gift, andexcise taxes; and any state estate or inheritance taxes.

Frequently Asked Questions (FAQs)

How can I find out how much my bonds are worth?

You can use the TreasuryDirect website to calculate the value of your savings bonds. If you have electronic bonds, simply log into your account and look up any current bonds you own. For paper bonds, you can use the online calculator to enter your bond information and find out what it's currently worth.

How long does it take for a Series I Savings Bond to mature?

An I bond matures for 30 years or until you redeem it, whichever comes first. It will accrue interest as long as it is maturing. You can redeem the bond after you've had it for 12 months. However, if you redeem it before it's five years old, you will pay a penalty worth the last three months of interest.

How do I cash in my savings bonds?

You can cash electronic bonds on the TreasuryDirect website and have the income directly deposited into your checking or savings account. If you have paper bonds, you can take them to your bank to cash or mail them to Treasury Retail Securities Services, along with FS Form 1522.

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