A 60-second read by Nicholas Scheibner, CFP®: Many clients have been asking us about Series I Savings Bonds. Here are some details that you need to know to determine if I Bonds are right for you - they are typically best for someone who has additional savings, which they feel they may not need for the next 1-5 years.
What are I Bonds?
I Bonds are issued by the United States Government and provide income in the form of interest which is determined by the inflation rate (Consumer Price Index for all Urban Consumers (CPI-U)).
What are I Bonds currently paying?
I Bonds issued between May – October 2022 are paying 9.62%. This is an annualized interest rate, (locked in for 6 months) which is a combination of a fixed rate and a semiannual rate tied to inflation. The interest is accrued monthly, and paid when the bond is cashed in.
How is the interest rate determined?
The actual rate paid to the investor is a composite rate made up of a fixed rate, and a semiannual inflation rate. The current fixed rate is 0.00%. The semiannual inflation rate is currently 4.81%.
This rate can change every 6 months from the month of issue.
What are the limits on I Bonds?
There is a $10,000 limit per person for I Bonds purchased through treasurydirect.gov in a calendar year. An additional $5,000 of paper I Bonds can be purchased with tax-refund dollars using IRS Form 8888.
What are the terms of I Bonds?
Once purchased, the minimum term of ownership for an I Bond is 1 year. I Bonds earn interest for 30 years, although the interest rate is reset semiannually. I Bonds do not lose their purchase value over the term of the ownership.
If you cash in the I Bond before 5 years, you forfeit interest from the previous 3 months.
Is the interest taxable?
The interest is federally taxable (with the exception for education expenses in certain cases**). This interest is not taxable to your state of residency.
How do I purchase an I Bond?
I Bonds cannot be purchased through your Schwab accounts. You will need to set up an account at https://www.treasurydirect.gov/ or login to your existing account.
Please reach out to us if you would like to discuss your specific plan in relation to purchasing I Bonds, or if you have any other questions.
Disclosure: This is a general communication being provided for informational purposes only. Past performance is no guarantee of future results. Every investment strategy has the potential for profit or loss. This material is not intended to be relied upon as a forecast, research, tax or investment advice.