I Bonds have increased significantly over the past two years, making them a savings product worth paying attention to once again. Fully-backed by the U.S. government, I Bonds are considered extremely safe and could be a good choice for many savers.
Never heard of an I Bond before? You’re not alone. They haven’t been popular for the last 20 years, but I’ll explain why they’ve recently become a hot trend.
However, you should strongly consider holding money in a high-yield savings account since many banks have been raising their rates. For example, the UFB Direct Savings account is providing an industry-best rate of 5.25% APY.
This post may contain affiliate links, meaning I get a commission at no cost to you if you decide to make a purchase through my links. Visit this page for more information. The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired.
I Bonds Overview
Inflation seems to be everywhere these days. Soaring gas prices, sky-high construction costs, and expensive Uber rides. There’s definitely a lot to complain about!
But complaining doesn’t get you anywhere. Instead, consider how to make money as inflation heats up with I Bonds.
What are I Bonds?
I Bonds, short for Series I Savings Bonds, are inflation-indexed U.S. savings bonds. It’s designed to protect the value of your cash from inflation.
I Bonds are a unique, very low-risk investment backed by the U.S. Treasury with a holding period from 12 months to 30 years. Think of Series I Bonds as bank certificate of deposits (CDs) that are liquid after 12 months.
You can’t redeem an I Bond within the first 12 months and if you cash it out before five years have passed, you’ll incur three months’ worth of interest as an early withdrawal penalty.
It earns a composite rate; one rate is a fixed interest rate determined at the time you buy an I Bond and the other rate is a variable rate that gets adjusted for inflation every six months. Combine the rates together and you get the composite rate (which is the total rate you earn interest on).
The variable rate essentially guarantees I Bond buyers that they’ll never lose the value of their money because of inflation.
I know, I know – this isn’t as thrilling as showing off all the money you’ve made from bank bonuses, but you’ll make a great deal more money now with Series I Bonds than parking your cash in a traditional savings account.
I Bond Benefits
Keep in mind that I Bonds have special benefits compared to other savings products (savings account, money market account, or CD), including:
- Exemption from state income taxes
- Redemption for higher education is exempt from federal taxes
- Tax deferral until bond redemption
- Inflation protection
These are things you should consider besides the actual rate the bonds provide.
Why didn’t you recommend I Bonds before?
Because I Bonds haven’t been relevant for 20+ years. Inflation has been so low for the past couple of decades that there were better places to safely invest your cash for a higher return.
When I Bonds first came out in 1999, they were offering an impressive 7% composite rate. Since then, I Bonds rates have sunk to the bottom of the ocean floor with a fixed interest rate of 0% and a mediocre variable rate.
However, variable rates have shot up recently due to high inflation and that’s what everyone’s excited about! Here are the historical rates of I Bonds for the previous few years along with its variable inflation rates:
| Issue Date | Fixed Rate | Variable Rate | Composite Rate |
| May ’23 – Nov ’23 | 0.90% | 3.38% | 4.30% |
| Nov ’22 – Apr ’23 | 0.40% | 3.24% | 6.89% |
| May ’22 – Oct ’22 | 0.00% | 4.81% | 9.62% |
| Nov ’21 – Apr ’22 | 0.00% | 3.56% | 7.12% |
| May ’21 – Oct ’21 | 0.00% | 1.77% | 3.54% |
| Nov ’20 – Apr ’21 | 0.00% | 0.84% | 1.68% |
| May ’20 – Oct ’20 | 0.00% | 0.53% | 1.06% |
| Nov ’19 – Apr ’20 | 0.20% | 1.01% | 2.22% |
| May ’19 – Oct ’19 | 0.50% | 0.70% | 1.90% |
How To Calculate I Bonds Rates
Inflation numbers released at BLS.gov helps us calculate what I Bonds rates will be. As time gets closer to the next rate adjustment, our prediction is more accurate because we have more months of inflation data to use in the calculation.
I say predict because we can only calculate what the variable inflation rate will be, and not the fixed interest rate. Remember that the total interest offered is a composite of the two rates.
Fixed Rate
The fixed rate formula is unknown, but it’s linked to the yield of short-term Treasure Inflation-Protected Securities (TIPS). Short-term TIPS are hovering just under 1% and therefore the fixed interest rate for I Bonds will likely stay close to ~1%.
The fixed rate was as high as 3.60% back in May 2000. Those lucky I Bond holders would now earn an incredible 10.08% for the six months starting in November 2022 (3.60% fixed + 6.89% variable).
Every six months, your I Bonds rates will adjust. The fixed rate will always stay at the same rate at the time of your purchase, while the variable rate will be based on inflation changes.
The fixed rate for I Bonds purchased after May 2023 has just been released and is 0.90%.
Variable Rate (Inflation Rate)
The variable rate, or inflation rate, is determined by how much inflation has gone up or down in the most recent six-month period.
I Bonds uses the Consumer Price Index for Urban Consumers, or CPI-U for short, which measures the overall change in consumer prices based on a representative basket of goods and services over time (e.g. housing, apparel, transportation, food, medical care, etc).
The variable rate for I Bonds purchased after May 2023 is 3.38%.
Composite Rate
The composite rate is the combination of the fixed rate and variable rate, and is the total rate earned from I Bonds.
The formula below shows you how to calculate the composite rate. As you can see, it’s not quite as simple as adding the two rates together:
Composite Rate = Fixed Rate + 2 x Semiannual Inflation Rate + (Semiannual Inflation Rate x Fixed Rate)
I’ll walk through how to use this formula for I Bonds purchased between May 2023 to October 2023.
May 2023 – October 2023 I Bonds Rates
The fixed interest rate is currently 0.90%. Since there’s no way for us to calculate it, we will put that number aside for now.
The CPI-U was 296.808 in September 2022 compared to a CPI-U of 301.836 in March 2023.
To determine the percentage of increase, you subtract the new number from the old number: 301.836 – 296.808 = 5.028. Next, divide this by the old price: 5.028 divided by 296.808 = 0.0169.
You then multiply that number by 100: 0.0169 x 100 = 1.69 or 1.69%, which is the semi-annual inflation rate.
Let’s plug these numbers into the formula I mentioned a minute go:
Total Rate = Fixed Rate + 2 x Semiannual Inflation Rate + (Semiannual Inflation Rate x Fixed Rate)
Total Rate = 0.009 + 2 x 0.0169 + (0.0169 x 0.009)
Total Rate = 4.30%
I Bonds purchased between May 1, 2023 and October 31, 2023 will earn a rate of 4.30% for the first six months of ownership. The composite rate will then adjust every six months based on inflation.
Earning 4.30% is a solid return, but it’s far less than the two previous I Bonds rates of 9.62% (May 2022 – October 2022) and 6.89% (November 2022 – April 2023). At those rates, you were enjoying stock market like gains with zero risk.
I Bond Rates Prediction November 2023
Now that we’ve established purchasing I Bonds between May 2023 and October 2023 will earn a guaranteed 4.30% return for the first six months of ownership, you may be wondering what you’d earn after the initial six months.
While we don’t have all of the data needed to calculate the new rate yet (waiting for September’s CPI-U), we do have most of the monthly data to make an educated prediction.
We know that March 2023 CPI-U was 301.836 and August 2023 CPI-U is 307.026. This represents a 1.72% increase.
Assuming inflation doesn’t change in September (unlikely), and assuming that the fixed rate of 0.90% remains unchanged (also unlikely), then:
Total rate = Fixed rate + 2 x Semiannual inflation rate + (Semiannual inflation rate X Fixed rate)
Total rate = 0.009 + 2 x 0.0172 + (0.0172 x 0.009)
Total rate = 4.36%
This means that starting in November 2023, new I Bonds will earn a rate of 4.36%.
That signals to us that inflation is cooling off, which is a good thing for consumers. But that’s not great for I Bonds.
What if I buy I Bonds before the rate change?
If you buy I Bonds between May 2023 and October 2023, you’ll be guaranteed a total rate of 4.30% for the next six months (based on the previous six months formula).
After that time period, your total rate is currently estimated to be 3.07% for the following six months. Assuming deflation doesn’t happen, then in terms of the absolute worse-case scenario, where you:
- buy I Bonds on or before September 28, 2023 (I Bonds take one business day to process)
- sell the I Bond on April 1, 2025 (hold the I Bond for the minimum 12 months and incur a three-month interest penalty)
You’ll earn a 4.02% annualized return for an 11-month holding period.
You may be asking why 11 months and not 12 months. It’s because in this scenario, you bought the I Bond at the end of September. Even though you only held the I Bond for a couple of days that month, you earn the entire month’s worth of interest.
It’s a near little trick to buy at the end of a month and gain the entire month’s interest.
Should I buy I Bonds now or wait until November 2023?
For the past few years, buying I Bonds was unquestionably the best option to grow your savings. You were earning returns similar to the stock market, but without any investment risk.
That’s not the case anymore. I Bond rates have gone down, and they’re now offering lower returns compared to other safe alternatives.
For instance, the high-yield savings account at UFB Direct offers an uncapped 5.25% APY with no minimum balance and no monthly fees.
If you can get that rate with no minimum holding period and no early withdrawal penalty, then it doesn’t make sense to buy additional I Bonds right now.
That’s what I’ve decided to do with my savings. If inflation rears its ugly head again, I can withdraw my funds from UFB Direct at any time and buy more bonds.
How to Buy I Bonds
You used to be able to buy savings bonds by simply walking into a bank, but that’s not the case anymore. The government no longer issue bonds in paper form (besides tax refunds – more on that below), you can only buy them in electronic form.
You can buy up to $10,000 in I Bonds each calendar year through an electronic TreasuryDirect account. Open an account at TreasuryDirect.gov to do so. The minimum purchase amount is $25.
The $10,000 limit is per person, not per household. In other words, a couple can buy a total of $20,000 in I Bonds per year. A family with children can buy another $10,000 per child as long as they have a Social Security Number.
Additionally, you can buy an extra $5,000 in paper I Bonds if you have a tax refund when you file your federal income tax return. Tax software like TurboTax will offer you this option if you’re due a refund. If you do your taxes by hand, you need to complete IRS Form 8888.
The minimum purchase amount is $50 when buying through a tax refund (Paper I Bonds come in denominations of $50, $100, $200, $500, and $1,000).
Most people don’t get a tax refund of $5,000 – at least not if you’re doing your taxes right.
In instances like this where you want to buy more I Bonds and therefore want a bigger tax refund, a strategy you can use is to purposely pay more in taxes throughout the year than you actually owe.
Ninja Note: If you want to purchase more than the $10,000 annual limit, I wrote a detailed post on all the ways to buy more I Bonds.
The Bottom Line
Personally, I bought $60,000 worth of I Bonds between my wife and I over the past few years, and the blended rate of return has been phenomenal. We started at 7.12% for the first six months, 9.62% in the following six months, 6.89% in the previous six months, and now 4.30% in the current six months.
Considering how ultra-safe I Bonds are as an savings option, the blended rate was way too good to pass up.
I don’t have plans to purchase more I Bonds for the reasons I explained in this post. Instead, I parked the rest of my emergency fund in the UFB High Yield Savings account that’s currently offering a 5.25% APY.
I also keep a small amount of money outside of real estate and stock investments directed towards chasing the best bank bonuses. Make sure you have an adequate emergency fund parked at a high-yield savings account before exploring all the different ways to make your money work harder for you.
Great write up! I have purchased 2 Ibonds, both for $10,000. First purchase was October 2021, then second one in Jan 2022. I have been debating the best time to sell/redeem these Ibonds and place these funds either into a high yield savings or my brokerage account. I assume it would be best to hang in for an additional 3 months at the lower rate, given the 3 month penalty for a withdrawal prior to 5 years. I look forward to your input or comments from the group. Thanks
Thanks Troy for the compliment! Regarding when the best time to redeem I Bonds is:
Since it’s the most recent three months of interest that is taken out if you redeem I Bonds held less than five years, I would wait until January 1, 2024 to withdraw bonds purchased in October (regardless of which year you bought them). That’s because your six months of 6.48% interest finishes in September 2023. Your three-month penalty period takes up October, November, and December at the lower rate.
I would wait until October 1, 2023 to withdraw bonds purchased in January (regardless of which year you bought them). The 6.48% interest finishes in June 2023 and the three-month penalty period takes up July, August, and September.
Hi John…LOVE this page. Thanks for keeping it updated. A question for you:
Let’s say I own a 10K iBond purchased in December of 2021. I’ve owned it for more than a year and thus can sell it but must take a penalty of losing 3-mo of interest. If (because of the lower rate that is coming on May 1) I decide I want to get out of the iBond, I can either get out immediately (say, on 5/1) and lose 3 months of 6.82% interest, or wait 3 months (on 8/1) and lose 3 months of 3.13% interest. (Ignoring compounding for the moment, 3 months of 6.82% interest is about $172, whereas 3 months of 3.13% interest is $71.)
Thus, it would appear that by delaying getting out of the iBond for 3 months, the penalty for getting out is reduced by about $100. Sounds reasonable…
BUT…with current 3-month CD’s paying about 5%, another way to look at this (I think?) is to realize that if I get out on 5/1, I can put the total proceeds of my sale (10K+) into a 3-mo 5% CD which (again ignoring compounding) would result in income of $126 (10K at 5% for a year, is $500, or $42 per month…or for 3 months, I’d earn $126…which subtracted from the $171 penalty I took by getting out early leaves me just down ($171 – $126) $45! I’ve reduced the effective penalty by immediately putting the proceeds of the sale to work.
So, a big difference (to me) is that if I get out early (5/1) I can put the proceeds immediately to work earning some real money, whereas the person who stays in the iBond for 3 months extra just to get the lesser penalty is missing the opportunity to have the whole principal working for you earning a much higher rate during those same 3 months.
Does this sound reasonable or am I missing something? I know I made a lot of assumptions and a bit of rounding, but I just feel that’s it’s not quite proper to just say waiting an extra 3 months at the lower rate to get out lessens your penalty…because while your penalty is indeed lessened by about $100, in doing so, you’re giving up the opportunity to utilize the full principal earning a much better rate for those same 3 months.
Reasonable?
Hi Ken – thanks for the compliments! It takes quite a bit of time to update this, but I’m glad people find it useful.
Your analysis is reasonable and logical for the scenario you described. Depending on what state you live and your income level, I’d also consider that interest earned on I Bonds is exempt from state and local taxes and you can defer federal income tax on the accrued interest for up to 30 years.
So the “effective” penalty could be worse than your forecast.
Thanks for the quick reply John. I’ve been doing some more figuring just for fun, and the value of my possible approach (of getting out early on May 1 when the rates drop down, and using the proceeds to earn a much better yield (using MM or CDs) during the next 3 months when others may be earning a lesser yield by staying in the iBond to minimize the penalty) is pretty much totally dependent on the CD or MM interest rates available at the time of getting out. As a friend of mine will often remind me, you have to get out your speadsheet and do the numbers!
I purchased some Series I bonds in May 2022 when the announced interest rate was 9.62%. However, when I checked the composite interest rate published on the treasury website – (https://www.treasurydirect.gov/savings-bonds/i-bonds/i-bonds-interest-rates/), I see 6.48%. Did they change the rate from 9.62% to 6.48% for May 2022 to October 2022?
I checked my account and the interest in my account amounts to 3.2% from May to now.
Where did the 9.62% go?
The website shows your actual value to include the 3 month penalty. The first 6 months earned 4.81% (9.62% APY) followed by 6 months at 3.245% (6.49% APY) minus 3 months for early withdrawal. If you bought a $10k I-bond in May 2022, the balance shown this month should be $10,651. In July it would be $10,821. That is the actual cash value and already includes the 3 month penalty.
Very informative! I’ve purchased multiple i bonds over the past 16 months for me and the family and have been trying to understand the various value accruals and current shown balances. You pointing out the values shown are cash out rates with 3 month penalty makes a lot of sense.
From my understanding, as long as you wait until the first of the next month, that month will then count as one of your months (interest earned). I’ve moved to 4-8-17 week treasury bills vs I-Bonds since January 23, last I-bond purchase was Oct 22. I’ll likely start pulling my older I-bonds in early June or July if new rates are sub ~3.5% and T-Bills are still 4.5% or higher. (Whenever I reach the 3 months of lower new rate). Worth paying the penalty to move on into something higher yielding.
Can anyone explain the third part of the interest rate calculation — where we multiply the two rates (semiannual inflation rate X fixed rate). What are we/they accounting for here? The interest on the interest earned in that period? or?
Thanks
I don’t think it’s the interest on the interest. It’s some sort of calculation that marginally boosts the composite rate. Instead of 6.88% for the November 2022 cycle, it’s 6.89% thanks to the third part of the interest rate calculation:
Total rate = Fixed rate + 2 x Semiannual inflation rate + (Semiannual inflation rate X Fixed rate)
[0.0040 + (2 x 0.0324) + (0.0040 x 0.0324)]
Gives a composite rate of [0.0040 + 0.0648 + 0.0001296]
Adding the parts gives 0.0689296
Thanks for the excellent info. I have been buying these for a while but one thing I never understood is about cashing them. If you cash between the two annual payment dates (assuming a 5 year or older bond) do you get pro rata interest for the partial period? or should you always try to cash the day after a payment?
You get the pro rata interest. Although interest is compounded semiannually, it’s earned on a monthly basis.
Can a husband and wife buy $20,000 in i bonds using one treasury direct account or does each have to have their own?
Each person needs to have their own TreasuryDirect account.
I have one account and buy for me and wife using the “gift” option
If I purchased $5000 in i bonds in May, (thank you for the heads up!) I still could purchase another $5000 this year. That being said, is the rate announcement made with enough lead time to either hold off till November to buy at a new rate (hopefully higher) or purchase another $5000 at the 9.62 rate? Thoughts? AND THANK YOU!
You’re welcome!
There’s a slight lead time that allows you to plan appropriately, but if I were you, I’d probably buy another $5,000 now. You’ll lock in the 9.62% for six months and then whatever the new rate is. If you buy at the start of the new rate, even if it’s higher, the next set of six months may be lower. Taking a guaranteed high rate vs gambling for a unknown May 2023 rate is a no brainer for me. You can always buy more next year.
My husband purchased $10,000 under our company name to give us a third opportunity for the bonds. When he did it he made a clerical error on the bank account number. We had to send via certified mail the correct information. We received an email that it was received but that it could take up to 13 weeks for the request to be processed. Should we go ahead and purchase another 10,000 shares since it could be after the 1st of the year before the correction will be made?
I didn’t see an answer to the question about whether the interest compounds?
I Bonds earn interest each month and the interest is compounded semiannually (every six months).
What happens if the CPI-U declines from June to Sept? How can you say that the 3.06% change from March to June will be a floor? We already know that the CPI-U declined from a June reading of 296.311 to a July reading of 296.276. And inflation could possibly decline each of the next two reports. Or if there is now change period to period, than the variable rate could hypothetically be zero. Thoughts?
Good catch. I wasn’t expecting month-to-month inflation to stagnate for the next few months, but as you pointed out, CPI-U declined slightly in July.
We’re getting close to knowing what revised rate will be. I’ll update the post – thanks for mentioning this!
Do you know why it is that when I add up the monthly changes in the inflation rate for the current period I come up with 4.72%, not 4.81%?
Sorry for not seeing this earlier. Can you tell me what months are you adding up?
Thanks Carl, I agree with you.
Would it be prudent to buy an I bond through Roth IRA account? Can it be held in the Roth IRA account?
I bonds can only be held at Treasury Direct or paper bonds via tax refund.
Someone was telling me in a rather lengthy and somewhat wordy fashion to go ahead and buy my 10K worth of i-bonds in April. Said I’d be better off folding the old rate with the May rate.
At some point during our discourse i said i would cash in at 15 months taking the withdrawal penalty into consideration.
Keep in mind the three-month penalty takes the most recent three-month period. So if you did lock in the May 2022 rate, you’d maintain all six months of 9.62% rate, all six months of the upcoming November 2022 rate, and give up three months of whatever the May 2023 rate comes out to.
Married couple here filing jointly with two children, one child 22 other 25.
If we want to go forth to the max, how many I bonds $10k could be acquired three or four and do we all need to acquire our own accounts?
If you’re a married couple with two children, you can buy $10k per SSN. You and your spouse will need to open a separate account to buy your own bonds at the $10k limit.
If your children are under 18, you can open a custodial account to buy bonds in their name. Doing so will indicate it’s a irrevocable gift to the children though. Here’s a post with a section specifically detailing the purchasing of bonds for kids.
https://themoneyninja.com/how-to-buy-more-i-bonds/#3_Buy_I_Bonds_Through_Your_Kids
Hi,
Great article. My husband and I maxed out and bought $10000 each month in November and December 2021 and again $10,000 each month in January and February 2022.
My question is a person or joint filers have a choice of paying federal tax now or later when bond is cashed. There is no state or local tax on the total composite gain. Does it make more sense to pay taxes now (if it doesn’t change tax bracket) before taxes eventually go higher? I’m feeling like that is the right thing to do and save a major tax bill later. I realize once you do it a certain way, for the bond’s life, you are committed to whichever way you decided. I’m just trying to plan for 2022 taxes..lol. Thanks.
Hi Kris, thank you!
Regarding your question, reporting interest income each year instead of deferring it could be a good move for someone with little or no taxable income and expect it to be significant higher in the future.
I’m not sure what tax bracket you’re in or expect to be in later so I can’t advise a straightforward yes or no. It’s also hard to predict whether the tax brackets will go higher or lower.
This strategy is clearer in specific scenarios, like if the savings bonds are held in a child’s name. They are most likely paying taxes at a lower rate today than in the future as the bond matures.
I missed the April 30, 2022 deadline. It is now May 2nd. Should I buy I bonds now or wait until the end of the month.
There’s no reason to wait until the end of the month unless you’re earning interest on the money you intend to invest in i bonds, and it’s worth waiting most of the month to continue to get that interest. This is a highly unlikely scenario.
Awesome of you to share your knowledge and put your time as well to do it !
I wish I had known about this I-Bond 20 years ago. This thing appears to be like one’s own Social Security system, or an augment to SS, at retirement.
If I understand it correctly, if my wife and I were to put 20k a year into it for 20-25 years then compounded at, or close to, retirement we’ll have a pretty sizeable, if not double, amount to withdraw from for along time thereafter. So, SS+ I-Bond draw.
I’ve just opened an account with Treasury Direct. It is letting me add another registration where I was able to add my wife’s SS# too. Not sure at this point if I’ll be able to add 10k for each registration, or if my wife needs her own account. Will find out soon 🙂
Thanks Much for your site. Its worth sharing and recommending !!
If the Fed decides to change the current fixed rate of 0%, when could that take place?
At any time or only once a year?
It can happen twice a year, at the same time they announce the variable rate portion of the bonds.
Can I buy Savings I bonds for spouse and myself for $10000 each for this calendar year and also each of us buy $10000 as gift to one another and deliver it next year to maximize the gain and avoid yearly limit?
Yes, that’s a potential strategy! The only caveat is that the gift has to be “received” in a different year.
For example, John and Jane are a married couple and each of them has already bought $10,000 in I Bonds for 2022. John can buy an additional $10,000 (or whatever amount) during 2022 with the gift being fully executed (“received”) to Jane in 2023. Since John bought the I Bonds in 2022, the savings bonds will begin accruing interest and counting down the 12-month lock-up period at the time of purchase.
Keep in mind if Jane elects to receive the bonds in 2023, she has to deduct that bond amount against her annual limit.
So, Jane (and John) can defer receiving/execution of their gifts to 2024 and buy another 10k each in their own accounts on 1/1/23?
i.e. have a total of 40k begin to earn the current rate of interest right now and add another 20k in Jan 2023?
That’s correct, but I wouldn’t perpetually stack more and more I Bonds – maybe a few years at most.
Because what if in the next several years, the U.S. experiences significantly lower inflation levels? The variable rate would go down by the same margin. In that situation, you don’t want years of bonds that you need to unload $10,000 at a time.
can you gift 10,000 to yourself for the next year?
No, you can’t name yourself as the owner of a gift. You can be a beneficiary, but you cannot be the primary owner or secondary owner.
One strategy if you have a significant other is to “gift” each other I Bonds. Wait until interest rates drop and the two of you stop buying I Bonds to take delivery of the gifts. The gift bonds earn interest starting on the day of purchase and will have aged enough to cash out immediately if desired.
If the new rate next year is still high, my wife and I will buy more and keep the gifts in the gift box. If the interest rate drops, we’ll skip the purchase, deliver the gifts, and cash them out.
I have a custodial savings account for a grandson. Can I remove money from that account and purchase an I Bond in his name? He is nine years old.
Yes to both. You can withdraw money from a custodial account as long as the funds go toward the benefit of the grandson. You can also purchase savings bonds under the name of the grandson.
I bought two $5000.00 I bonds April of 2009
One for me and one for my wife
What are they worth
What are they earning
Should I sell them and buy new I bonds
Do I have to sell them after thirty years of holding
They are paper bonds should I set them up differently
I intend to get more now, today is Friday April 29, 2022, should I wait until later in May to get them as the interest amount will be the same
You can go here to calculate the value of your paper bonds. They’re earning the same variable rate as every active I Bond, currently at 9.62%.
You don’t need to sell them as they’re still earning interest; they will just no longer accrue additional interest after 30 years. You can (and probably should) buy more this year to take advantage of this high rate of return. There’s no “set up” for paper bonds. To redeem them, go to your local bank.
Electronic I Bonds behave a bit differently – when bonds in a TreasuryDirect account stop earning interest, they’re automatically cashed and the interest earned is reported to the IRS.
CORRECTION: There is a way to convert paper bonds to electronic bonds. It’s cumbersome, but worth it in our case. They electronic ones end up on the Treasury Direct website as a subaccount uner your main account. Google “I Bond Conversions” for details.
i couldn’t find a way to list beneficiary or TOD or anyway to pass along in case of death. did i miss something
You have to name a second owner. That second owner becomes the beneficiary if you should pass away. Each I Bond holding allows only one second owner or beneficiary but not both at the same time. This second owner or beneficiary must be a person, not a trust or a charity. If you’d like to leave your I Bonds to multiple people after you die, you must make separate purchases and name a different person for each I Bond.
Question if you both die in accident does the bonds go into probate or can you will them?
Correct me if I’m wrong, but I’m looking at the inflation component not as interest in the conventional sense, but as a gradual adjustment to the value of a bond. So buying in April captures the 7% increase set last fall, it just takes 6 months to collect the full adjustment amount. Then it guarantees the opportunity to collect the next full 9% expected adjustment. Waiting until May basically means leaving the first 7% adjustment on the table in return for a higher initial rate, but in the long run the bond will be worth less than one bought in April. Comments?
No one knows for certain because none of us has a crystal ball. My opinion is that it will be very tough to match the blended annual rate of 7.12% and 9.62%, although inflation is unpredictable. Moreover, one day the fixed rate component may be higher than 0% again.
We bought our i-bonds in April thinking along somewhat different lines however to collect the 7 point first then the May adjustment. Mostly to avoid the unknown upcoming in November. IDK who’s better off. Planning on going 15 months with things.
This is great info. Learning a lot here. My question is if I buy 10k today (4/25/22) can I not buy again until 4/25/23 or is it calendar year? Would I be able to buy another 10k in Jan of 2022 if the rates were still going strong locking in that rate for a new 6 month window? – Thanks!!
Hey Jared! Happy you’re finding the site valuable. The $10k limit is per calendar year, so if you purchase the maximum amount today, you can buy more bonds starting January 1st of next year.
Hi, today is April 24th 2022. Can I buy on April 30th and qualify for 7.12%? Or is there a processing delay which will push my start date to early May 2022 even though I placed my order in late April 2022? Also, does April 30th being a weekend impact this?
Feedback from other readers indicate that it takes one business day to process, so if you buy on Friday, it may take until Monday to execute. One person wrote that he ordered the bonds on Friday and it didn’t process until Monday (when a new month started). I’d do it a few days before just to err on the safe side.
You are able to place your order in advance and specify the date that you wish the actual purchase to take place, as long as your account and funding source is set up.
Is the interest compounded,. or always based off the original purchase, in my case $10000?
Is the interest paid monthly and can that be sent to a checking account or does it have to stay within the bond for the full time? Thanks.
Per the post, interest is accrued monthly but is only paid out at the time of cash out which is at least 1 year out.
Are these I bonds tax deferred?
Yes, the taxes can be deferred for up to 30 years as long as you don’t redeem them.
Today is 4-18-22 can i buy $10,000 worth of I bonds today and can I also buy $10,000 I bonds for my wife also and what would be my rates . thank you
7.12% for 6 months and then 9.62% for the following 6 months.
Hello! Excellent and informative website. Quick question re: I bond purchase strategy. Would it make sense to purchase $5000 each, for my husband and I NOW, in April and then purchase an additional $5000 each in May? We have emergency funds sitting in a traditional savings account doing nothing and this total of $20,000 would not affect that.
Thanks for the compliments, Liz! If I were in your position, I would purchase the entire limit before the end of April. Locking up 7.12% for six months and then 9.62% for the following six months is a clear win. If you wait, you’re gambling that the variable rate will be higher than 7.12% in the next rate adjustment.
Thanks! Sharing your website with my friends and my daughter who is a grad student and just beginning her investing journey!
Is it worth taking penalty on traditional IRA that I have to start taking withdrawal on this year to be able to transfer all to I-bond?
Each person can only purchase $10,000 worth per calendar year.
If I cash out of the I bond after 12 months and before 5 years I will forfeit 3 months interest. My question is at what rate? Would it be the current 3 month interest rate or an average rate of your entire holding period? For example if inflation dropped to 0 and the bond had a 0 fixed rate and was paying 0 interest for the last 3 months, would the penalty be $0 ?
If you redeem an I Bond within the first 5 years, you’ll lose your last 3 months interest. For example, if you redeem an I Bond after 24 months, you’ll receive the first 21 months of interest.
So yes, if your fixed and variable interest rates happen to both be 0% for the last 3 months that you held the bond, your penalty wouldn’t be a penalty at all.
Since rates are going up from 7.12% to 9.62% on May 1st, should I wait until May 1st or buy before the end of April?
Buy now. If you buy before May 1, you’ll earn 7.12% for six months and then 9.72% for the following six months. If you buy on May 1, the only thing you know for certain is receiving 9.62% for the first six months. Beyond that, you need to wait until November 2022 to see what the rate adjustment is.
But the rate could remain at or higher after Oct. 2022!
Effective May2022 – will it be 7.89%?
Even higher! It’s going to come in at 9.62% at the minimum. See my post update.
I have an Ira that I need to start drawing off of this year. Would it be prudent to withdraw all now and put in I-bond now instead?
If you don’t have the need for that money right now, I’d say so. There’s no sense in putting the cash in a savings account, money market, or CD when you can get such a high return with I bonds.
Thanks for all the great information. So no matter when you purchase a specific i bond, it will receive the initial rate for six months, followed by six months at the next declared rate, followed by six months at the next declared rate and so on . . . . right?
You got it, Bill. Whatever the current interest rate is when you purchase the I Bond, you’ll earn that rate for six months and so forth. It’s exactly as you said.
Can a married couple file separate tax returns, so that each can use their ($5,000 limit) refund to buy a paper I-bond? This, instead of filing jointly, and being limited to $5,000 together.
The $5,000 maximum is per tax return, not per person. So you can if you’re married filing separately, but check to see if the benefits outweigh the costs.
If you’re married filing jointly, you still can buy only a maximum of $5,000 for both of you combined, not $5,000 for each of you. Details can be found on IRS Form 8888 instructions (page 3).
Can I use the bonds to pay for my child’s higher education expense (federal tax free) or does the bond have to be in his account and under his name?? Thank you
It should be under your name and/or your spouse’s name. You can take the exclusion if all five of the following apply:
1. You cashed qualified U.S. savings bonds in the same tax year for which you are claiming the exclusion.
2. You paid qualified higher education expenses in that same tax year for yourself, your spouse, or your dependents.
3. Your filing status is any status except married filing separately.
4. Your modified adjusted gross income was less than the cut-off amount set by the Internal Revenue Service. This amount typically changes every year (see IRS Form 8815 for the current amount).
5. You were 24 or older before your savings bonds were issued.
Note: A bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or the child.
If I understand this correctly, I must purchase Ibonds in my name (parent) vs the child’s name to use tax free for college?
That’s correct.
So, I am planning to buy more ibonds in 2022. I am a little confused. Let’s say I buy $10,000.00 in February. Would I get the 7.12% amount for 6 months or will it adjust at the end of April?
You’ll get the 7.12% for six months. So if you bought in April, you’ll get that rate through September. In October, you’ll earn the adjusted rate set back in April.
Bought my bond a few days ago and understanding what I will be earning when is a bit confusing. But from your post and after reading a bunch on Treasury Direct it seems as follows:
I bough a $10,000 bond Dec 23rd, the bond counts as if it were purchased on Dec 1. It will earn the 7.12% rate from Dec 1 to May 31. At that point the $10,356 that my bond is worth will earn whatever the new rate is.
So if I bought a second bond $10,000 on Apr 25th the bond would count as if it were purchased on Apr 1 and the 7.12% rate would count from Apr 1 to Oct 31, meaning the bond would be valued $10,356 and then the new rate would apply for the next 6 mos.
Is this right?
The real question: The trade offs of buying earlier vs. later (between Jan 1st and Apr 30) are buying early allows you sell the bond earlier (without penalty 5 years later, or with penalty after 1 year). Buying later (in April) gives you insight as to the future rates (as they are announced at that point) while having to cash out later.
Do I have a good understanding of the Tradeoffs?
Exactly as you said, Julio.
Good job on locking in your maximum savings bonds purchase this year. There’s no other safe financial instrument that comes close to this return.
And since you bought $10,000 of I Bonds at the end of December, you’re technically getting more than 7.12% because you’ve only held it for 5 months while earning 6 months’ worth of interest.
Thanks John!
Fantastic Blog you have hear. Hoping to learn some of your tricks :-).
— Julio
Why would a $10,000. I bond only earn $356. Dollars after 6 months if the rate is 7.12% ?
The 7.12% rate is the annual percentage rate (APR), so after six months you’re earning roughly half of that.
Sorry, I need a further clarification:
Julio bought $10K worth Dec 23rd.
His ROI Dec 1 – April 30 @ 7.12%
His ROI May 1 – Oct 31 @ 9.62%
His ROI Nov 1 – Future Fixed + Inflation Rate
Julio bought another $10K worth April 25th
His ROI April 1 – April 30 @ 7.12%
His ROI May 1 – Oct 21 @ 9.62%
His ROI Nov 1 – Future Fixed + Inflation Rate
Is my understanding correct?
Partially correct on the first purchase. The fixed rate component doesn’t adjust for existing bonds – only new bonds. The inflation rate component changes every 6 months, but the bonds purchased are also locked at each rate for 6 months regardless of when it was purchased during that rate window.
This is more clear in the second purchase where Julio will earn 7.12% for 6 months before it readjusts to the current 9.62% rate:
Julio bought another $10K worth April 25th:
His ROI April 1, 2022 – September 30, 2022 @ 7.12%
His ROI October 1, 2022 – March 31, 2023 @ 9.62%
His ROI April 1, 2023 – September 30,2022 = 0% Fixed Core + Future Inflation Rate
Can one purchase the $10K max for husband and wife on one Treasury Direct account of does she need to create her own account? thanks!
No. TreasuryDirect only allows individual accounts to purchase for themselves. No joint accounts either. If your significant other wants to purchase up to the $10k per person limit, they would need to open their own account.
Should I buy my $10,000 worth of I bonds today 12/26/21 or wait till after the 1st of the year?
If you want to buy more I Bonds next year, I would buy before the end of the year so it counts against your 2021 limit instead.
Why wouldn’t you invest the $10k in Voyager under USDC which draws 9% interest?
Great question, Alex. While I personally invest in a number of crypto platforms, including Voyager, nothing is as safe as government-backed bonds.
Stablecoins like USDC and GUSD are pegged to the dollar 1:1, but there’s still an increased risk since crypto platforms reinvest the tokens to earn a higher return (i.e. yield farming, loans, etc.).
Put it in another way, in order to pay you 9% interest, they need to earn a higher amount in order to remain profitable. This inherently has a higher risk profile.
LOL
Is it to late to buy I Bonds for this year? today is 12/7/21
It’s not to late – you still have time to buy it!
can you buy i bonds from a ira account
TreasuryDirect (where you buy I Bonds from) is only meant for individuals to buy securities from the Treasury and manage them through an account within their website, so you can’t use it to buy Treasuries for an IRA.
Even if you could, I don’t think you’d want to anyway, since you’re using after-tax money in a pre-tax account.
Can I roll a SEP plan to the I bond and keep it qualified?
I waited to10/29 to buy I bonds which was too late. Treasury couldn’t complete the transaction until 11/1which is the date of my bond, not 10/1 which I intended.
Thanks for the feedback that people may have to buy a few days earlier to ensure their purchase month isn’t delayed. That’s a bummer, but not so bad. You’ll still get 6 months worth of interest accrual at 7.12%. Then just hope that the next rate setting is competitive.
I bought max I Bonds in June 2021. Should i max out in Jan 2022 to get 7.12% ? Thanks for all help in this!!
Yes, I’d max out on January 31 (and get a full month’s worth of interest in just one day) to lock in the 7.12% for the following six months!
How long do you recommend buying the bonds for?
That depends on what would you do with the money otherwise and what return vs risk that gives you. We know for sure if you buy the bonds now you’ll get a great rate overall for the next 12 months and then we’ll have to see what the inflation reading is next April.
Why would you buy the bond NOW that is on October 2021 when you can GET A HIGHER YIELD IF YOU WAIT ANOTHER 15 DAYS?
Because you’ll get the 7.12% for the following six months AFTER your 3.54% rate is over in the first six months of owning the bond. That’s guaranteed whereas the rate after 7.12% is an unknown. No one can predict what inflation is in 2022.