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Six Things to Know Before Investing in Series I Savings Bonds

Josh Andrews

Since the COVID-19 pandemic began, news outlets have bombarded us with headlines referring to “unprecedented times”. It’s certainly an interesting time to be an investor—market volatility is back in 2022, inflation recently hit 7.5% (its highest since February 1982), and current bonds yields are meager. On top of that, savings accounts and other short-term savings vehicles like money market funds and CDs are hardly paying anything.

Amid this perfect storm, one investment has become a hot topic: Series I Savings Bonds (also known as “I bonds”). I bonds are currently paying 7.12% and can be purchased directly through the U.S. Department of the Treasury. Before getting too excited, there are some limitations to these savings bonds, including a maximum yearly investment. However, the investment deserves consideration from investors.

Here are six things you should know before investing in I bonds:

  1. Safety: I bonds are issued directly by the U.S. Department of the Treasury and backed by the U.S. government. As markets remain volatile, safety remains appealing. Investors can purchase I bonds online directly from the U.S. Department of the Treasury Bureau of the Fiscal Service (URL below).
  2. $10,000 limit: Up to $10,000 of I bonds can be purchased, per person (or entity), per year. A married couple can each purchase $10,000 per year ($20,000 per year total).
  3. 7.12% interest: The yield on I bonds has two components—a fixed rate and an inflation rate. For I bonds purchased between November 2021 and April 2022, the fixed rate is 0.00%, and the inflation rate is 7.12%, annualized. Bonds purchased after April 2022 will have a new interest rate set by the U.S. Treasury. The current 7.12% yield is the highest since May 2000 and effective for the first six months of owning the I bond (bonds purchased in March 2022 will earn 7.12% through September 2022).
  4. Minimum requirement: I bonds must be held for a minimum of one year. Additionally, if the I bonds are sold within five years, you must forfeit the previous three months of interest. There is no penalty if the I bonds are held for at least five years. I bonds mature after 30 years but do not need to be held to maturity.
  5. Taxation: Interest from I bonds is exempt from state income taxes but is subject to federal income tax. If the I bonds are used to finance education, the interest is exempt from Federal income tax. Federal income taxes can be deferred for as long as the bonds are held or until it reaches maturity in 30 years.
  6. Gifting: I bonds can be given as gifts. Since interest is tax-free if used for education expenses, family members and friends may purchase I bonds for a student preparing for college.

Series I Savings Bonds seem like a great investment opportunity. For investors who typically hold cash or CDs, this may make sense. Investors with expenses due in at least 12 months may opt for an I bond rather than their savings account or short-term bonds. Other investors may decide “the juice is not worth the squeeze.” Like any opportunity, it is important to consider it within the context of your overall investment objectives.

To purchase I bonds, go to treasurydirect.gov.

While your Resource Consulting Group advisor is happy to answer any questions on I bonds related to your long-term investment plan, our client services department cannot assist with purchasing I bonds. All I bonds purchases must take place through the link above.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. This information is for educational purposes only and should not be considered investment advice or an offer of any security for sale.