Want an inflation-proof investment backed by the U.S. government? There’s good news and not-so-good news.
The good news is that Series I savings bonds (I bonds for short) have a guaranteed 9.62% return through at least October 2022 – nearly equal to the stock market’s average annual performance. Their purpose is to keep up with inflation (which is what the “I” stands for). And because they’re government-issued bonds, there’s no risk that you’ll lose any of your original investment.
The not-so-good news is that you’ll have to navigate an outdated, potentially glitchy website to buy the I bonds. But, as I found out, it really isn’t that bad. I was able to purchase $50 worth of I bonds for my son in about 10 minutes once I gathered the required information.
What to Know Before You Buy I Bonds
Before you get into the nitty gritty of buying I bonds, there are a few things to know.
1. The interest rate on I bonds changes every six months. When inflation goes down, I bond interest rates will go down, too.
2. You can purchase up to $10,000 in electronic I bonds per Social Security number in a calendar year. You can also buy up to $5,000 in paper bonds using your federal income tax return each year.
3. You cannot cash in your I bonds for at least one year, so your money is tied up. After that, if you cash the bonds before five years, you’ll forfeit the previous three months of interest earnings. The bonds mature after 30 years.
4. You have to pay income tax on any interest you earn. You can choose to pay it annually, when you cash out, or when the bonds mature. You can’t hold them in an IRA, 401(k), or other tax-advantaged account.
And remember…you can only buy I bonds directly from the government, using an old, outdated website.
Set aside at least half an hour to gather the information you’ll need. And for the love of all that is holy, try to not mess up any part of the account opening process. When I say this website is a relic, I really mean it.
How to Purchase I Bonds: Step by Step
- Head to TreasuryDirect. No, you didn’t time travel back to 1999. That’s how the website looks.
Click “Open an account” under the “Account Login” section on the right.
On the next page, you’ll see “TreasuryDirect” under “Individual/Personal” at the top of the page. Click “Go.”
Then, when the next page loads, click “Apply Now” at the very bottom of the page. Or, you can click here to go directly to the application page.
2. You’re in! Choose your account type. If you’re purchasing I bonds for yourself or a loved one, select “Individual” and then click “Submit.”
Fill out the application. You’ll need your Social Security number and driver’s license or state ID number for this portion, as well as your bank account information. You also need a U.S.-based address, a phone number and an email address.
From what I can tell, this is the only time you’re asked for your bank account information, so double- and triple-check it. I’ve heard changing this (or anything, really) is a major pain, so go over all the information you’ve added before proceeding to save yourself the headache.
Note: you can only open an account for people 18 or older. So if you’re opening an account for a minor, like a child or grandchild, you’ll have to apply for yourself and then add them to your account later.
Select an avatar from a list of stock photos and add at least three security questions. They’re all pretty standard, such as “What’s your best friend’s name?” and “What’s your favorite pet’s name?” So if you talk a lot about going to your favorite vacation spot with your best friend or how adorable your dog Max is, maybe choose questions with answers that are harder to guess.
3. Get ready to verify! You’ll need to confirm your email and then log back in by manually clicking each character of your password on a digital keyboard, which oddly isn’t case-sensitive.
To log in again, you’ll also need your new account number. It’s the only way to access your account, so you’ll want it handy every time you log in. Keep it in a safe place and copy it elsewhere in case you ever get locked out of your email account.
4. You’re ready to buy! Click “BuyDirect” from the menu at the top and select “Series I” from the “Savings Bonds” section.
Note: If you’re purchasing I bonds for a minor, click “Manage Direct” and choose “Establish a Minor Linked Account” first. From there, you’ll need the minor’s Social Security number to purchase I bonds on their behalf.
You’ve already filled in your bank account information, so you just need to add how much you want to purchase (note there’s a $25 minimum). There’s an option to make recurring purchases, or schedule purchases for the future. If you just want a one-time purchase, that’s the default.
When you’re done, click “Submit.” I got an email confirmation within seconds. And that’s it! You’ve successfully purchased your I bonds. The I bonds showed up in my son’s TreasuryDirect sub-account the following day.
Make Sure to Double-Check Everything
For the love of all that is holy, try to not mess up any part of the account opening process. When I say this website is a relic, I really mean it.
Should you enter something incorrectly, the correction process involves printing, notarizing, and snail mailing your updates to a P.O. box that could take eight to 10 weeks to be processed.
So if you can at all help it, enter your information correctly when you open your account and double-check everything.
Are I Bonds Worth It?
“The one big caveat people need to pay attention to is that you have to invest the money for at least one year,” explains Caitlin Frederick, CFA, CPA, director of financial planning and wealth advisor at Ullmann Wealth Partners in Jacksonville Beach, Florida. If you have a lot of cash you don’t immediately have a need for and you’re wary of the stock market, “it’s an absolute no-brainer.” She adds, “there’s rarely been an example in history where you can get a guaranteed rate of 9.62% for very, very low risk.”
“They’re great for money you don’t need for a year,” says Melissa Ciotoli, CFP®, CDFA®, managing director and senior wealth advisor at GYL Financial Synergies. “If inflation continues to go up, I would expect [the interest rate] to remain at its current level or go up.
So are they worth it? Frederick says yes. “It’s a really great deal, meaning you have a very high return relative to the risk, and it’s accessible to the everyday person.”
As long as you understand the caveats, “I think it’s a fantastic idea,” Ciotoli says. “It’s guaranteed. You can do it online.”
If you buy I bonds for someone else, Frederick recommends telling them (or their guardian) and giving them the password just in case. The website is clunky and can be hard to access, and it’s prudent to make loved ones aware that they have investments in their name.
For long-term investing, though, the stock market still wins because the returns can be much better with a longer time horizon. Plus, you have the benefit of compound interest on your side.
If you have cash you won’t need for a while and can stand to invest for at least a year, I bonds are a safe investment with an excellent return. Just prepare yourself in advance to face the outdated website – and keep in mind that when the inflation rate drops, the return on I bonds will likely drop, too.