I bonds offer investors a way to avoid the brunt of inflation. Here’s how they work and where to buy them
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Similar to corporate organizations, the US government can issue bonds as a way to raise necessary funds. Buyers of Series I Savings Bonds, more commonly referred to as I bonds, enjoy the security of a fixed return plus protection against inflation.
Here’s how these bonds work, whether they’re a good investment, and how to buy one.
What are I bonds?
I bonds are designed to protect your money against the corrosive effect of inflation. Unlike a regular savings bond with a fixed rate, I bond interest rates are regularly adjusted to account for the current inflation rate.
Here’s a closer look at the features of this relatively low-risk investment opportunity:
Note: Bonds issued from May to October 2022 have a combined initial interest rate of 9.62%.
Annual Percentage Yield (APY)
9.62% Interest Rate guaranteed for 6 months, when purchased by 10/31/22
Minimum Deposit Amount
$0
Annual Percentage Yield (APY)
9.62% Interest Rate guaranteed for 6 months, when purchased by 10/31/22
Minimum Deposit Amount
$0
Deposit Details
Annual Percentage Yield (APY)
9.62% Interest Rate guaranteed for 6 months, when purchased by 10/31/22
I-Bonds are backed by the US Government, so you’re guaranteed a 9.62% Interest Rate on up to $10,000. The Interest Rate on I-Bonds is adjusted every 6 months. The current rate is 9.62%. I-Bonds purchased now through October 2022 will have a 9.62% Interest Rate guaranteed for 6 months. Future changes in rates are not disclosed by the US Treasury.
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Minimum Deposit Amount
$0
Pros & Cons Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
Pros
Check mark icon A check mark. It indicates a confirmation of your intended interaction. Zero I-Bond forms, zero stress
Cons
Dash icon A dash. It often indicates an interaction to shrink a section. Savings account earnings are not as straight forward as other high-yield savings accounts Highlights Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
More Information
Is an I bond a good investment?
As with all investment choices, whether or not an I bond is a good investment depends on your financial goals and risk tolerance.
Chris Stuart, a financial analyst and portfolio manager at Shorepoint Capital Partners, says I bonds are good for conservative investors who don’t need to access their cash any time soon. “I bonds really are meant to be used as long-term investments.”
Some savers use I bonds to pay for education for themselves, a spouse, or dependents. If you choose to redeem your I bond and use the funds to pay for qualified education expenses, the interest you earn isn’t taxable by the federal government.
Quick tip: I bonds can also be purchased as gifts for adults or children. To accept the bond, the recipient must also have a TreasuryDirect account.
Pros and cons of I bonds
Every investment opportunity has advantages and disadvantages. Here’s what to know about I bonds.
How to purchase I bonds
I bonds are issued by the U.S. Department of Treasury. You can purchase up to $10,000 worth of I bonds electronically on the TreasuryDirect website. The site requires you to create an account before you get started.
Additionally, you can purchase up to $5,000 worth of paper I bonds annually with your federal tax refund. If you want to pursue this option, you’ll need to file IRS Form 8888 with your tax return and indicate an I bond as your preferred payment method.
How to redeem I bonds
If you are holding onto an I bond, you’ll want to cash it in at some point. With electronic I bonds, the process is as simple as logging onto your TreasuryDirect account. There’s a link within your account to cash your bonds. Funds should arrive in your savings or checking account within two business days.
If you have a paper I bond, you’ll likely need to send physical copies to Treasury Retail Securities Services with FS Form 1522. Account holders at some banks have the option to cash paper savings bonds at a branch location.