The I Bond Rate Fell Below 7%. We Answer Your Questions

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

With persistent inflation weighing on consumers’ budgets, this quirky government savings bond offers a great deal right now for people with savings to spare and who are looking for safety in their investments. The I bond rate changed recently, and is now paying a 6.89% return for the next six months.

“That ‘I’ should remind you of inflation. You’re lending the money to the U.S. government, and in return, they will pay you interest. And that interest rate can change,” personal finance expert Rita-Soledad Fernández Paulino said during a recent NextAdvisor webinar about I bonds. 

But before you rush to the U.S. Treasury’s website, it’s important to look at your overall financial picture and figure out whether I bonds suit your current savings and investment goals. They make the most sense if you have money you can set aside and confidently won’t need to access in the near future.

You may also have some outstanding questions about them. We received dozens of questions during our I bond webinar with Fernández Paulino, and decided to dig around for answers. Here’s everything you should 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-backed securities that are connected to the inflation rate. Because the government backs it, it is considered a relatively safe, conservative investment with no chance of losing its principal value. 

Where can you buy I bonds?

You can buy I bonds on the U.S. Treasury’s website. The minimum purchase amount for an electronic bond is $25. If you want paper bonds, you must purchase them in denominations of $50, $100, $200, $500, and $1,000. 

Is there a limit to how much 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 purchase up to $5,000 in paper bonds, bringing your potential total to $15,000 per Social Security number each calendar year.

Are I bonds taxable?

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

What do you lose if you cash out the bond early?

It depends on how early you cash the bond. You can only cash in your I bond after a year. You’ll lose the last three months of interest if you cash it in before five years. After five years, you won’t lose any interest for cashing out.

If you buy at the current interest rate and it drops on Nov. 1, which interest rate applies to your bond?

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

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

I bonds earn interest for 30 years, as long as you don’t cash them in before then. You need to hold them for at least one year, and if you redeem them after less than five years, you forfeit the previous three months of interest. 

When is the interest reportable for tax purposes: when you cash in the bond or when the interest is earned?

You can defer federal taxes on earnings until you cash in the bond or when it finally matures (30 years after the purchase date), whichever comes first. 

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

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

Are I bonds a good way to save for a down payment for a home?

If you anticipate buying a home in the next five years, consider putting your money in an I bond to supercharge your interest earnings, akin to having a separate account for savings. The thing to ask yourself is how nervous you would be tying up this amount of money for a year or more. 

How is the interest rate determined on I bonds?

I bond rates are made of two parts: a base rate and a variable rate. The base rate is fixed for the bond’s life and the variable rate changes regularly, depending on the inflation rate. Together, these rates are expressed as the composite rate. These are all the rates together in one chart since 1998.

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

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

How can you calculate what you’ll 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 hold an electronic bond, you can check its value by logging on to your account. Once you’ve logged in, click the “current holdings” tab, choose a series, and click “submit” to see how much interest you’ve earned on a specific bond. 

How does interest accumulate? Month to month or yearly?

Interest accumulates on the first of each month based on the earnings rate, which is currently 9.62%. Starting Nov. 1, there will be a new interest rate for I bonds. Your interest is compounded on a semiannual basis.

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

How can you buy I bonds for your family?

The simplest way to give a savings bond to a family member is through the TreasuryDirect website. To give an electronic savings bond to someone, you and the recipient need a TreasuryDirect account. You’ll also need the recipient’s full name, Social Security Number (or Taxpayer Identification Number), and TreasuryDirect account number. You can only give a savings bond to a child if they have an account linked to a parent’s account. You have to hold the savings bonds in your account for at least five business days before you can send it to the recipient as a gift.

How difficult is it to cash the bond? What’s the process?

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

For paper bonds, you’ll need to fill out the FS Form 1522 and send your form and bonds through the mail to Treasury Retail Securities Services. You can also try to cash it at a bank where you have a bank account, but banks vary in how much they will cash at one time — or if they cash savings bonds at all. 

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

You would make all your bond purchases under the same account on the U.S. Treasury’s website, whether for yourself or you’re gifting it to someone else. For example, a married couple would open two separate TreasuryDirect accounts if both spouses wish to purchase I bonds. That’s because each account is limited to purchasing $10,000 per person per calendar year.