All About I Bonds
“A series I Bond is a non-marketable, interest bearing U.S Government savings bond that earns a combined fixed interest rate and variable inflation rate (adjusted semiannually). Series I bonds are meant to give investors a return plus protection from inflation.”
Investopedia.com
The current fixed rate is 0%, but the current inflation rate is 9.62% (until Friday October 28th). If you buy an I Bond before October 28th, you will get the 9.62% rate for the next six months. After six months, you will get the new current rate, which is set on November 1st and estimated to be 6.47%. Before you buy an I Bond, you need to know certain facts:
- The maximum amount of I Bonds an individual can buy is $10,000 per year. (You can also direct up to $5,000 of your tax refund to buy I Bonds.) This maximum is based on Federal ID numbers – your social security number, your spouse and children’s social security numbers, a trust’s separate EIN, or a company’s EIN. That means you can buy $10,000 of I Bonds each year for you, your spouse, your children, your trust, and your company.
- The bonds can only be purchased directly from the U.S. Treasury at TreasuryDirect.gov. You cannot buy them from a broker or a bank. You enter your bank account information to your Treasury Direct account to buy the bonds.
- Interest compounds and is added to the principal of the I Bond every six months, it is not paid to you. You receive interest only when you redeem the bond. The variable inflation rate interest is recalculated every six months on May 1st and November 1st.
- You must hold the I Bond for 12 months after purchase before redeeming. After the first year, you can cash in the I Bond, but in years two through five, you give up three months of interest. If you do not redeem early, the bonds continue to earn interest for 30 years.
- You can choose to pay tax on the interest earned each year or wait to pay tax until the interest is paid to you on redemption.
Information You need to Buy an I Bond
Before you buy an I Bond, you have to set up an account at TreasuryDirect.gov. Here is the information you need to set up an account:
Name
Social Security number
Birthdate
Address
Phone number
Email address
Bank name
Routing number and account number
I Bonds as Gifts
You can buy an unlimited amount of I Bonds as gifts. When you buy an I Bond as a gift, the bond remains in your account until you transfer it to the gift recipient. So, while your personal purchase of I Bonds in any year is limited to $10,000, you can buy $10,000 of I Bonds as gifts for your spouse, children, relatives, friends, etc. Here is information directly from Treasury Direct about gifting I Bonds: https://www.treasurydirect.gov/files/savings-bonds/how-to-buy-gifts-in-td.pdf.
How to Double Your Amount of 9.62% I Bonds
This is a little tricky, but instead of settling for $10,000 of I Bonds at the current high rate of interest, you can double that amount if:
- You are married or have a willing partner.
- Your spouse or partner agrees to perform the steps below.
In fact, you and your spouse / partner can wind up with $40,000 of I Bonds with the 9.62% rate locked in by doing the following:
- You set up an account and buy $10,000 of I Bonds by Friday, October 28th. You purchase a gift for your spouse / partner of $10,000 if I Bonds by the 28th.
- You hold the gift bonds in your account until after January 1st, 2023 and then deliver the bonds to your recipient’s account.
- Your spouse / partner repeats the steps above for their account and purchases a $10,000 gift I Bond for you.
The key to this maneuver is that you can buy a gift I Bond in addition to your own I Bond, and hold the gift bond in your account for an unlimited amount of time. Unfortunately, the $10,000 limit on annual purchases includes the receipt of a gift. So, if you give your I Bond gift in 2023, the recipient cannot buy another bond that year. If you can convince your significant other to make a gift to you, you are also precluded from buying a bond in 2023. But, as a result of these transfers, you could have a total of $40,000 of I Bonds at the high rate.
Disclosures
The opinions expressed are those of NBZ Investment Advisors, LLC (“NBZ”). The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Forward looking statements cannot be guaranteed.
This information should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the holdings listed have been or will be profitable, or that investment recommendations or decisions we make in the future will be profitable.
The investment strategies presented may not be appropriate for every investor and individual clients should review with their financial advisors the terms and conditions and risk involved with specific products or services. As with all investments, past performance does not indicate future results. Investing involves risk including the potential loss of principal. Additionally, this material should not be construed as tax advice. You should always consult with your tax professional with regard to specific tax questions and obligations.
NBZ is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about NBZ’s investment advisory services can be found in its Form ADV Part 2, which is available at nbzinvest.com or by calling (865) 584-1184. NBZ-22-06.
