This article is a short summary of key points about Series I Savings Bonds.
You can learn more and purchase I-Bonds directly from the US Treasury at treasurydirect.gov
What are I-Bonds?
I-Bonds are a type of savings bond issued directly by the United States Treasury.
What is the I-Bond Interest Rate?
The interest rate paid by I-Bonds is based on the rate of inflation.
Due to the current high rate of inflation, interest paid on I-Bonds is now higher than we've seen in decades.
From May 2022 through October 2022, I-Bonds will earn an annualized interest rate of 9.62%.
A new interest rate is set every 6 months based on the inflation rate at the time.
How Can I Access I-Bond Money?
I-Bonds can't be cashed out until 12 months after purchase.
After 12 months, I-Bonds can be cashed out any time. However, if you cash out I-Bonds before owning them for 5 years, you lose 3 months worth of interest.
I-Bonds purchased electronically through treasurydirect.gov can be redeemed electronically through the same website.
More information about I-Bond redemptions can be found here: cashing out I-Bonds
How Do Taxes Work?
Interest paid by I-Bonds is subject to federal income taxes, but not state or local taxes.
Taxes can either be paid annually or when the bond is cashed out.
More information about I-Bond taxes can be found here: I-Bond taxes
How Much Can I Buy?
The I-Bond purchase limit is $10,000 per calendar year for I-bonds purchased through Treasury Direct per social security number.
For married couples, both spouses are eligible to purchase up to $10,000 per calendar year.
Are I-Bonds Worth It?
I-Bonds are attractive for money sitting in a checking or savings account earning very little interest (often 0.1% or less) that you're fairly certain you won't need in the next 12 months.
If $10,000 is used to purchase I-Bonds and the rate stays at 9.6% for 12 months, that's $960 in interest over the next 12 months. Keep in mind the interest rate resets in 6 months and may go down if inflation goes down, so actual interest earned may be lower.
If $10,000 sits in a bank account earning 0.1%, that's $10 of interest over the next 12 months.
In this example using 9.6% for I-Bonds vs. 0.1% for a savings account, I-Bonds would pay $950 more than savings accounts over a 12 month period.
For married couples, if both spouses purchased $10,000 in I-Bonds, the difference is $1,900.
Also consider this additional interest earned is only over the first 12 month period. Over time, if inflation stays moderately elevated and savings account rates stay very low, the difference becomes more significant.
If you have excess cash in the bank that you won't need to access for at least 12 months, and if you're willing to spend a few minutes setting up an account on the site treasurydirect.gov, I-Bonds seem to make good financial sense vs. savings accounts for excess cash you won't need any time soon.
While purchasing I-Bonds versus leaving the money in a savings account probably isn't a make-or-break decision for your retirement planning and long-term financial security, it's a good low-risk optimization under the right circumstances.
Want To Discuss This Individually?
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This is article is for informational purposes only and should not be considered as tax or legal advice. Advice is only provided after entering into an Advisory Agreement with the Advisor. See other disclosure here: Disclosures
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