Series I savings bonds, or "I bonds" for short, come with guarantees, tax-deferred inflation-adjusted interest, and, after one year, liquidity. They could be one of the best cash investments you ever make.
- I bonds are a good cash investment because they are guaranteed and have tax-deferred, inflation-adjusted interest. They are also liquid after one year.
- You can buy up to $15,000 in I bonds per person, per calendar year—that's in electronic and paper I bonds.
- I bonds accumulate interest, and you can cash them in during retirement to make sure you have safe, guaranteed investments available.
- Interest is a combination of a fixed rate and an inflation rate. I bonds bought between November 2021 and April 2022 had an interest rate of 7.12%.
I Bonds Can Supplement Your Emergency Fund
I bonds make a great second-tier emergency fund. They're second-tier, because you can't sell them within the first 12 months of purchase, so you need other liquid funds to rely on while you build up a stash of I bonds.
The most you can buy is $15,000 per person, per year—that's up to $10,000 in electric I bonds and up to $5,000 in paper I bonds using your federal income tax refund. You can open an account directly with the Treasury Department through the TreasuryDirect website. There's a $25 minimum for electric bonds and a $50 minimum for paper bonds.
Interest earned on I bonds consists of both a fixed interest rate and an inflation rate. The fixed rate stays the same for the life of the bond, while the inflation rate is set twice a year. For example, new I bonds issued between November 2021 and April 2022 have a combined interest rate of 7.12%. That rate would apply for the first six months that the I bond is owned. Interest is compounded semiannually and is tax-deferred.
|When Does an I Bond Change Rates?|
|Issue Month||New Rates Take Effect|
|January||January 1 and July 1|
|February||February 1 and August 1|
|March||March 1 and September 1|
|April||April 1 and October 1|
|May||May 1 and November 1|
|June||June 1 and December 1|
|July||July 1 and January 1|
|August||August 1 and February 1|
|September||September 1 and March 1|
|October||October 1 and April 1|
|November||November 1 and May 1|
|December||December 1 and June 1|
Where else can you get guaranteed tax-deferred interest on a safe and liquid investment while knowing that if interest rates go up, yours will also likely go up? That is what makes I bonds an excellent choice for a safe cash investment.
If you want and can afford it, you can build up a significant holding of I bonds by buying the maximum amount of I bonds each and every year.
I Bonds Can Fund Future Health Care Premiums
Health care premiums and out-of-pocket costs could run you up to $300,000 during retirement. Depending on your age and the number of years until you plan to retire, I bonds could give you safe, guaranteed, inflation-adjusted investments available to cover medical costs in retirement.
How to Buy I Bonds
You can open an account line with TreasuryDirect, link it to your bank account, and transfer money to buy the maximum amount of I bonds each year. You can purchase paper I bonds directly with your tax refund each year.
TIPS vs. I Bonds
TIPS bonds (Treasury inflation-protected securities) are different from I bonds. Unlike I bonds, the interest on TIPS is not tax-deferred, so this vehicle may be best owned inside tax-deferred accounts like an individual retirement account (IRA) or Roth IRA. Unfortunately, you can't open an IRA account directly at TreasuryDirect, so TIPS in your IRA must be purchased through a brokerage account.
Tax Treatment of I Bonds
The taxable income on Series I bonds can be deferred until the time of redemption. With bonds that have been held for decades, it can add up. If the proceeds are used for higher education expenses, the bond can be excluded from taxable income. Otherwise, the interest you earn on your I bond is subject to federal income taxes; federal estate, gift, and excise taxes; and any state estate or inheritance taxes.
Frequently Asked Questions (FAQs)
How can I find out how much my bonds are worth?
You can use the TreasuryDirect website to calculate the value of your savings bonds. If you have electronic bonds, simply log into your account and look up any current bonds you own. For paper bonds, you can use the online calculator to enter your bond information and find out what it's currently worth.
How long does it take for a Series I Savings Bond to mature?
An I bond matures for 30 years or until you redeem it, whichever comes first. It will accrue interest as long as it is maturing. You can redeem the bond after you've had it for 12 months. However, if you redeem it before it's five years old, you will pay a penalty worth the last three months of interest.
How do I cash in my savings bonds?
You can cash electronic bonds on the TreasuryDirect website and have the income directly deposited into your checking or savings account. If you have paper bonds, you can take them to your bank to cash or mail them to Treasury Retail Securities Services, along with FS Form 1522.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.
TreasuryDirect. "Buying Series I Savings Bonds." Accessed Feb. 9, 2022.
TreasuryDirect. "Series I Savings Bonds." Accessed Feb. 9, 2022.
TreasuryDirect. "Series I Savings Bonds Rates & Terms: Calculating Interest Rates." Accessed Feb. 9, 2022.
Fidelity. "How To Plan for Rising Health Care Costs." Accessed Feb. 9, 2022.
TreasuryDirect. "Treasury Inflation-Protected Securities (TIPS)." Accessed Feb. 9, 2022.
TreasuryDirect. "Education Planning." Accessed Feb. 9, 2022.
TreasuryDirect. "Tax Considerations for I Bonds." Accessed Feb. 9, 2022.
TreasuryDirect. "Cashing (Redeeming) Series I Savings Bonds." Accessed Feb. 9, 2022.