How You Can Purchase I-Bonds Directly from the Treasury
Terry Herr, CFP®, CLU
With inflation hovering near 40-year highs, some investors are looking for investments that keep pace with rising prices. For many, a Series I Savings Bond is just the ticket. I Bonds give investors a rate of return plus inflation protection and are backed by the U.S. government.1,2
It’s been big business. The Treasury sold more than $27 billion of I Bonds since last year. That's more than a 70-fold increase from 2020 when inflation hovered in the 1 percent range.1,3
Continued Opportunity in U.S. Treasury I Bonds?
There may still be a great opportunity to use some of your extra cash to purchase I-bonds at favorable rates. In April of 2022, we sent out an email about the unique opportunity high inflation numbers created to purchase I-Bonds directly from the U.S. Treasury. The current I Bond rate is 6.89% for savings bonds issued from November 1, 2022 to April 30, 2023. Assume you purchase a bond in February of 2023, you'll earn 6.89% for 6 months and then the bonds will adjust for inflation. The worst case scenario is that the inflation rate drops to 0% or goes negative. This means you won't earn anything during the second 6 months of ownership (the rate never goes negative), dropping your annualized rate to approximately 3.45%. If you think inflation will continue to be an issue in 6 months, buying I-Bonds today may be a great opportunity as an alternative to large cash balances in your bank account. If you don't think inflation will continue, certificates of deposits are also starting to become more attractive for cash holdings.
NOTE: I Bonds are 30-year bonds and you cannot redeem your bonds for 12 months from the date of purchase. If you redeem your bonds between after your 12 month and before 60 months, you will forfeit 3 months of interest. If you are buying I Bonds today, we would anticipate that you would redeem the bonds sometime between 13 and 60 months so you would want to factor in the 3 month interest penalty when making a purchase.
We can’t purchase them on your behalf or in your accounts with us. I Bonds must be purchased directly through www.Treasurydirect.gov.
Purchasing I Bonds today is not the same opportunity last April offered since the rates are lower. It is something to consider should you have large cash balances earning low rates, assuming you can wait a full 12 months to access the funds. Remember, you can purchase up to $10,000 per individual annually (based on tax ID number) of I Bonds directly from the U.S. Treasury. This means each calendar year, couples can buy $10,000 each under their own tax ID numbers for a total of $20,000.
1. Gather your info. Make sure you have the following close at hand: your taxpayer identification number, current address, checking or savings account information, and email address.
2. Go to Treasurydirect.gov's account creation page. Navigate to the bottom of the page and select “Apply Now” on the left. This will begin your account creation journey. Next, you will choose between an Individual or Entity account. Select the Individual account type (the default option) and click “Submit.”
3. Enter your info. Using the information gathered in step 1, fill in the fields requested and check the box at the bottom to certify your Taxpayer Identification Number. Click “Submit.
4. Select a personalized image. Take some time here to select an image and caption you will remember. Think of this as a visual password for your account. Click “Submit.”
5. Secure your account. Select your password and security questions on this screen. Make sure the answers to your security questions are impossible to guess but easy to remember. Click “Submit” to move to the final step.
6. Check your email. Finally, look for your TreasuryDirect account number in your email. You’ll need this to log into your account later.3
What to Know About I Bonds
It's worth repeating again. I Bonds earn interest for 30 years unless you cash them in early. You can do this after a year has passed from the time of purchase, but you'll lose the previous three months of interest. However, if you let them mature for five years or more, there is no penalty.2
The maximum amount you can invest is $10,000 per person per year. A married couple can buy up to $20,000. Parents can create custodial accounts for children and then make a purchase. A person can invest up to $15,000 if they elect to get tax refunds in I Bonds.2 You'll need to speak to your tax prepare about this option.
Questions about I Bonds or anything else financial? Feel free to CONTACT US anytime.
This content is or informational purposes only and not a recommendation to purchase or sell any security. Individuals should determine the appropriateness of I Bonds in consultation with their advisors. This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.