Series I Savings Bonds are receiving lots of media attention these days. We thought it might be helpful to provide some introductory information on this unique saving option.
Series I Bonds are government bonds issued (and purchased) through the US Treasury. Like all bonds, they are purchased at a face value and feature an interest rate. The term of the bonds is 30 years, but they can be redeemed earlier. When you redeem the bond you receive both the face value and the accumulated interest payments (subject to the terms of the bond1).
Paper I Bonds can be purchased using your tax return refund for a total of $5,000 per person per year. I Bonds can also be purchased online up to a total of $10,000 per person per year. This is done directly from the website: www.treasurydirect.gov. These totals apply separately, meaning you could buy a total of $15,000 in I Bonds ($10,000 electronically and $5,000 paper.)
Interest paid on I Bonds comes from two sources: a fixed rate that is good for the life of the bond, and an “inflation rate” that is reset every 6 months. Bonds currently being issued feature a fixed rate of 0.00%.
It is this year’s inflation rate that is responsible for the current media buzz. The current
6-month inflation rate is 4.81% and the rate for the previous 6 months was also
4.81% -- meaning the cumulative interest rate for 2022 will equal 9.62%.
Don’t forget: the semiannual inflation rate will reset every six months after the bond’s issue date (your purchase date) and will fluctuate.
How have these bonds fared in the past? Since September 1st, 1998, the fixed rate has ranged from 0.00% -- 3.6%. The inflation rate has ranged from -2.78% -- 4.81. You did read that correctly; it is possible for the bonds to receive a negative inflation rate (although that is unlikely in today’s rate environment.)
The interest paid on I Bonds is subject to ordinary income tax. Interest can be reported annually or at the time of maturity/when you redeem them.
In short, Series I Bonds are a longer-term investment that may be worth looking into as a part of your overall portfolio.
More information can be found at: www.treasurydirect.gov.
1 You can cash in Series I Bonds after 12 months, however, if you do prior to holding for five years, you lose the last three months of interest.