Series I Bonds: A Safe, High-Return Investment for Uncertain Times

By: Maria Alejandra Pulgar

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In an economy that has been hit several times since the pandemic, it is difficult to find ways to protect the value of money from inflation, invest safely and earn a good return. However, an opportunity is there with Treasury Department Series I Savings Bonds.

This particular instrument is becoming attractive this year for three simple reasons: First, they are backed by the US government; second, they can be purchased online from the US Treasury Department website, starting at $25, and additionally, they earn 9.62% annual interest if purchased before October 2022. There is also a chance to buy these paper bonds using tax return, starting from $50 up to $5000.

An investment in I Bonds can be as high as $10,000 per person per calendar year, starting at $25 if purchased online, making them a great gift for important occasions such as births or graduations , or to start a savings fund for special purposes. in the future.

These bonds can only be purchased by US citizens or permanent residents over the age of 18 or on behalf of a minor. This investment must be kept for at least 12 months; if it is sold after this date but before five years, a penalty corresponding to three months of accrued interest will apply.

Inflation has reached an all-time high in 2022. Investing in this financial instrument, which will pay an interest of at least 9.62% for the first six months, is a smart way to preserve the value of hard-earned money, better than keeping the money “under the mattress” or in a savings account that earns 1% more per year.

“Bond Lingo” 101

It is important to master several notions before purchasing a bond investment, in order to ensure that the experience brings the expected results:

A savings bond is a financial investment product with a low risk of loss of value over time. According to the United States Department of Treasury, Series I bonds are “savings bonds that earn interest based on a combination of a fixed rate and an inflation rate.” The current interest rate is 9.62% for six months for all I Bonds purchased until October 2022, from the date of purchase. The rate is recalculated every six months.

The Maturity period of a bond is the period during which a bondholder will receive interest on their investment. Series I bonds have a maturity period of 30 years; therefore, these were created to be long-term investments.

The financial dictionary defines Interest yield as “the interest paid on a bond, expressed as a percentage of its current price”. Series I bonds pay interest with a fixed rate and “a floating rate that is adjusted twice a year for the rate of inflation.”

When do you receive interest on these bonds?

When investing in bonds, patience is a virtue. Series I bonds cannot be redeemed until year one, and if redeemed before year five, a three-month yield interest penalty is charged. Therefore, investors should think twice before making the purchase if they are unsure whether they will need the money soon.

At the time the bonds are redeemed, owners receive, in addition to the initial purchase amount, the interest return for the entire period of ownership of the instrument. Income from bond investments is subject to federal income tax in the year received, unless the amount is used to pay for college fees.

The interest rate on these bonds is adjusted twice a year according to inflation, which protects the value of the capital invested. During the first six months, regardless of the month of purchase, the investor obtains the interest rate in effect at the time of purchase. The money continues to earn interest until the due date or until it is cashed, whichever comes first, with rates being adjusted every six months. It is a safe investment as it is backed by the US Treasury Department.

Purchase of Series I Bonds

Only US citizens or permanent residents are eligible to purchase these bonds. No corporate investors are permitted except for trusts or estates which may purchase these instruments for their beneficiary.

Those interested in purchasing the bonds should create an account on the Treasury website, providing their social security number and other additional information. After registration, parents or guardians can also include their children’s information to purchase bonds on their behalf or the SSN of the person who will be the beneficiary in case the purchase is a gift of bonds.

It is extremely important to save all Treasury Direct portal access information in a safe place; otherwise, it will be very difficult to cash the bonds when the time comes.

Series I bonds online can be purchased from $25 up to $10,000. Paper bonds can also be purchased from $50 and arrive in the mail. The purchase of bonds using the tax return is done when filing taxes for the year, with a special form for this purpose.

Once the steps have been completed to process payment, the online bonds are created and posted to the Treasury Direct account, where they can be reviewed periodically until cleared.

Buying these Series I bonds is a safe and easy way to put your hard-earned money somewhere where it can continue to grow over time; it is worth considering the option.

For more information, visit www.treasurydirect.gov/

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