The I Bond rate has just fallen below 7%. We answer your questions

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I scream, you scream, we all scream for… I bond?

With continuing inflation weighing on consumer budgets, this quirky government savings bond offers a lot right now for people with savings to spare and looking for security in their investments. The I bond rate changed recently and is now yielding 6.89% for the next six months.

“This ‘I’ should remind you of inflation. You lend money to the US government, and in return it will pay you interest. And that interest rate can change,” personal finance expert Rita-Soledad Fernández Paulino said during a recent NextAdvisor webinar on I bonds.

But before rushing to the US Treasury website, it’s important to take a look at your overall financial picture and determine if I bonds are right for your current savings and investment goals. They make more sense if you have money you can put away that you won’t need to access with confidence in the near future.

You may also have outstanding questions about them. We received dozens of questions during our I Bond webinar with Fernández Paulino, and decided to search for answers. Here’s everything you need to know about this type of savings bond.

Your questions and answers about Series I Savings Bonds

What is an I bond?

Series I Savings Bonds are government guaranteed securities that are linked to the rate of inflation. Because the government backs it, it is considered a relatively safe and conservative investment with no risk of losing its primary value.

Where can you buy I bonds?

You can buy I bonds on the US Treasury website. The minimum purchase amount for an electronic deposit is $25. If you want paper bonds, you have to buy them in denominations of $50, $100, $200, $500, and $1,000.

Is there a limit to the amount you can invest in I bonds?

You can purchase up to $10,000 in electronic bonds per calendar year. But you can also use your tax refund to buy up to $5,000 in paper bonds, bringing your potential total to $15,000 per Social Security number each calendar year.

Am I taxable?

You must pay federal income taxes on the interest you earn on the bonds, but not state and local income taxes. If you use the bonds to cover tuition and related costs, you may be able to avoid paying federal income tax on your interest. You can find more information about school exclusion in IRS Form 8815.

What do you lose if you redeem the bond early?

It depends on how quickly you collect the deposit. You can only cash out your I Bond after one year. You will lose the last three months of interest if you cash it before five years. After five years, you will not lose interest in cashing out.

If you buy at the current interest rate and it drops on November 1, what interest rate applies to your bond?

The current interest rate of 9.62% will apply to your bond for the next six months.

How long will the money be locked in if you buy an I bond?

I bonds pay interest for 30 years, as long as you don’t cash them in first. You must keep them for at least a year, and if you redeem them after less than five years, you lose the previous three months of interest.

When should interest be reported for tax purposes: when you redeem the bond or when the interest is earned?

You can defer federal income tax until you redeem the bond or until it matures (30 years from the date of purchase), whichever comes first.

What if you are married? Can each person buy $10,000 of I bonds?

Yes, you and your partner could each buy $10,000 of I-Bonds. That’s the maximum amount you can buy in e-Bonds per calendar year and per Social Security number. You can also each buy $5,000 in paper bonds using your tax refund, bringing the total amount to $15,000 each.

Are bonds a good way to save for a down payment on a house?

If you plan to buy a house in the next five years, consider putting your money in an I bond to supplement your interest income, just like having a separate savings account. The thing to ask yourself is how nervous you would be to tie up that amount of money for a year or more.

How is the interest rate determined on I bonds?

Bond rates are made up of two parts: a base rate and a variable rate. The base rate is fixed for the life of the bond and the variable rate changes regularly according to the rate of inflation. Together, these rates are expressed as a composite rate. These are all the rates combined in a single graph since 1998.

Can you buy an I bond with TIN? Or just SSN?

You can use a TIN to buy a bond, according to Fernández Paulino.

How can you calculate what you will earn with I Bond?

The Treasury Department offers a savings bond calculator on its website where you can run the numbers to see how much you can earn over time. The calculator is for paper bonds only. If you have an electronic deposit, you can check its value by logging into your account. Once you are logged in, click on the ‘current holdings’ tab, choose a series and click ‘submit’ to see how much interest you have earned on a specific bond.

How does interest accrue? Monthly or yearly?

Interest accrues on the first of each month based on the rate of pay, which is currently 9.62%. From November 1, there will be a new interest rate for I bonds. Your interest is compounded semi-annually.

If I bought $10,000 in May 2022, can I buy another $10,000 in January 2023?

You can only purchase up to $10,000 in e-bonds per calendar year or 365 days. However, you can use your tax refund to buy up to $5,000 in paper bonds, bringing the total to $15,000.

How can you buy I bonds for your family?

The easiest way to give a savings voucher to a family member is through the TreasuryDirect website. To give someone an electronic savings voucher, you and the recipient need a TreasuryDirect account. You will also need the recipient’s full name, social security number (or tax identification number) and TreasuryDirect account number. You can only give a voucher to a child if they have an account linked to a parent’s account. You must keep the Savings Bonds in your account for at least five business days before you can send them to the recipient as a gift.

Is it difficult to cash the deposit? What is the process?

You can cash in your I bonds through the federal government’s TreasuryDirect site, by mail, or through a bank. If you are cashing your electronic bond, you will log into your account, select “ManageDirect” and use the link to cash securities. You’ll need to provide specific details such as the issue date and serial number for each bond, and your winnings will be deposited into your bank account within days.

For paper bonds, you will need to complete Form FS 1522 and mail your form and bonds to Treasury Retail Securities Services. You could also try cashing it in at a bank where you have a bank account, but banks vary in how much they will cash in at a time – or if they cash in savings bonds.

Do you have to create an account for every I bond you purchase, or can they all be purchased under one account?

You would make all of your bond purchases under the same account on the US Treasury website, either for yourself or as a gift to someone else. For example, a married couple would open two separate TreasuryDirect accounts if both spouses wish to purchase I Bonds. This is because each account is limited to purchasing $10,000 per person per calendar year.

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