Broker Check

Series I Bonds

May 17, 2022
Share |

We are always looking for ways to improve your situation financially and in any other way we can. We have been telling people on our recent calls about this, but really wanted everyone to know now.

Let's talk about the Treasury Series I Bonds issued by the Treasury. 

Here are a few facts that may help you: 

  1. Since these are not tradeable securities, Taylor and I are unable to buy these for you.
  2. These are US Savings Bonds and you must create an account on Treasury Direct and buy them there.

Given the complexity of the security, it is important to understand how these work.

There is good information on the site (www.treasurydirect.gov). It is quite easy, and you are limited to $10,000/account annually (calendar year).

So, a married couple with a trust should be able to buy $30,000.
Example: George buys $10,000, Martha buys $10,000, and The G+M Washington Living Trust buys $10,000.

IRAs CAN NOT PARTICIPATE.

Note: you can designate an additional $5,000 from a tax refund to the I Bond.

Why do we like these for idle cash? Well, how does 8.5% yield for one year sound? Caveats to follow!

Had you bought it in April, the annual rate for the first six months was 7.12%, then 9.62% for the next six months. My math says about 8.54% over 12 months. 

YOU MUST HOLD IT FOR ONE YEAR. I repeat: No liquidity for 12 months! The interest posts at redemption. If you redeem before 5 years, you LOSE 3 months of interest. So, in the math above, you cash out after 365 days and lose 3 months of interest, you made 6%. I like that math.

Did I mention that the interest back dates to the beginning of the month of purchase?

May purchases start with 9.62% according to the site today.

Take your time at the website, it isn’t really that hard- and as always, we want to help. So call us if you seem lost at the treasury site.

REMEMBER, Series I, not E or anything else.

What is an I bond?

A savings bond that earns interest based on combining a fixed rate and an inflation rate.

Comparing I Bonds to EE Bonds

Comparing I Bonds to Treasury Inflation-Protected Securities (TIPS)

What interest does an I bond earn?

A combination of a fixed rate that stays the same for the life of the bond and an inflation rate that is set twice a year. For bonds issued from May 2022 through October 2022, the combined rate is 9.62%How do I bonds earn interest?

Is it taxable?

Federal income tax: Yes

State and local income tax: No

Tax Considerations for I bonds

Using the money for higher education may keep you from paying federal income tax on your interest. See "Education Planning."

Paper or electronic?

Both.  (You can buy a paper I bond only when filing a federal income tax return.)

Minimum purchase

Electronic: $25

Paper: $50

Maximum purchase

Electronic:  $10,000, total, each calendar year

Paper:  $5,000, total, each calendar year

Available bonds

Electronic:  Any amount, to the penny, from $25 to $10,000.

Paper: $50, $100, $200, $500, $1,000

How long must I keep an I bond?

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. (For example, if you cash an I bond after 18 months, you get the first 15 months of interest.)

How do I buy an I bond?

Electronic: Online in TreasuryDirect (including through payroll direct deposit)

Paper:  By mail when you file your federal tax return