Consider adding Series I savings bonds to your portfolio
The interest rate on Series I savings bonds is specifically indexed to inflation such that the rate changes every six months based on the previous six month’s change in inflation. The rate is reset in November and May each year. Currently, the interest on Series I bonds is an attractive 7.12 percent. The rate changes two times a year so if you want to take advantage of this current rate, you must do so before the end of April. Based on most recent inflation numbers, we can expect a comparable rate for the next rate set in May.
Series I bonds can be used to help protect your savings from inflation, as a supplement to your retirement income, for gifts, or as a way to help fund qualifying education expenses. While the earned interest is subject to Federal Income Tax when they are redeemed, they are not subject to State or Local income taxes. The bonds earn interest (at a rate that changes twice a year) for up to 30 years. You can cash in your Series I bonds after one year, but if you do so before five years, you lose the previous three months of interest. For example, if you cash an I bond after 18 months, you only get the first 15 months of interest.
How to buy savings bonds
If you wish to purchase paper Series I bonds, you can do so through your federal tax refund. There is a $5,000 calendar year maximum purchase limit. Include Form 8888 with your 2021 federal tax filing to purchase paper Series I bonds. Adults can purchase paper bonds in the name of their child(ren).
The bonds are also available for purchase electronically, up to $10,000 per calendar year. You will need to have or open a Treasury Direct account at savingsbonds.gov. Once you have done so, you will be able to buy and manage all your bond purchases from that account. The site also provides a lot of useful information regarding how the interest rates are calculated, limits, tax questions, gift options, and more.
While children under the age of 18 cannot open an account or purchase bonds through Treasury Direct, a parent or adult custodian can open an account that is linked to the adult’s account and conduct transactions on behalf of the child. Other adults, such as grandparents, can also buy savings bonds for the child as gifts once the account has been established.
Fair warning, the customer service experience with Treasury Direct is not great. If your account is locked out for any reason you can expect exceedingly long wait times to get help which is only offered by phone. Be careful when selecting your “secret” questions and be sure to keep track of those responses along with your logon credentials and enter them correctly when prompted.
We are offering readers a free guide to help you open and manage your Treasury Direct account. Visit https://toyourwealth.com/savings-bonds/ to request your copy.