What is a Series I Savings Bond?

This is a type of savings bond that earns interest based on a combination of a fixed interest rate and an inflation rate..

What is an I bond?

An I bond is a security that earns interest. There are two components to the interest rate: a fixed rate and a rate based on inflation. These bonds earn interest until they reach 30 years or until they are cashed. Keep in mind there are penalties for cashing I bonds before 5 years.

What is the current interest rate for an I bond today?

The current rate is calculated by taking a fixed interest rate which stays the same for the life of the bond (30 years) and an inflation rate which is calculated twice per year (November and April). For bonds issued from May 2022 through October 2022, the combined annual rate is 9.62%. The Treasury announces the fixed rate for I bonds every six months (on the first business day in May and on the first business day in November). The current fixed rate for May 2022 through October 2022 is 0% and the Semiannual inflation rate is 4.81%. 

Is the interest compounded for an I bond?

Interest is earned monthly on I bonds. But, the interest is COMPOUNDED semiannually. Twice per year, the interest the bond earned in the previous 6 months is added to the bond’s principal. The interest for the next 6 months is calculated using the new adjusted principal.

How do I purchase an I bond?

There are two methods to purchase Series I Savings Bonds: paper and electronic. In order to purchase and own and electronic I bond, you must establish a TreasuryDirect account. You can use your federal income tax return to purchase paper I bonds.

Is there a minimum or maximum purchase amount?

Yes. The minimum purchase amount is $25 for electronic and $50 for paper. The maximum purchase amount is $10,000/year for electronic and $5,000/year for paper. You can take advantage of both limits for a combined limit of $15,000/year per person. Keep in mind that an I bonds received as gifts count towards these annual limits.

Are these bonds taxable?

Yes. These bonds are subject to Federal income tax but are exempt from state and local tax. You may also qualify for an exemption if you use the money for higher education. There are unique tax considerations to consider for I Bonds. The interest can be reported annually or it can be deferred until either of these three situations: you cash the bond, you give up ownership of the bond, or the bond matures and stops earning interest (30 years).

Are there any special tax considerations for Education Planning?

Yes. According to the Treasury Direct website: There is an education tax exclusion which permits eligible taxpayers to exclude from their gross income all or part of the interest paid upon the redemption of the eligible savings bonds, when the bond owner pays qualified higher education expenses at an eligible institution.

Please make sure to read the rules and qualification of this plan on the Treasury Direct website.

Who can own an I bond?

Individuals can own I bonds if they have a Social Security number and meet any one of the following conditions: United States Citizen (whether you live in the U.S or abroad), United States resident, Civilian employee of the United States.

Children under 18 can own I bonds if they meet one of the conditions listed above for individuals.

According to the Treasury Direct website: Trusts, estates, corporations, partnerships, and some other entities can purchase electronic I bonds. Trusts and estates can purchase paper I bonds in some cases. Corporations, partnerships, and other entities may not purchase paper I bonds.

Can I purchase I bonds as gifts?

Yes. You can purchase I bonds as gifts. If purchasing for a child, the adult will need to open a Treasury Direct account for the child that is linked to the adult’s Treasury Direct account.

How long do you have to keep an I bond?

These can be cashed after a minimum of one year. But if they are cashed before 5 years, you lose the previous 3 months of interest. 

What do I bonds cost?

These When purchasing an I bond, you pay the face value of the bond. If you buy a $100 bond, you pay $100 and the bond increases in value over time as it earns interest. Electronic I bonds are available in any amount down to the penny. Paper bonds are sold in increments of either $50, $100, $200, $500, or $1,000.

For more information on Series I Savings Bonds and how to purchase them, visit https://www.treasurydirect.gov/ to learn more and find out how to purchase I-Bonds.  

DISCLAIMER: The information is for educational purposes only. This information is provided in good faith without any warranty. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Prudent Financial Planning unless a client service agreement is in place.