I Bonds: What Investors Need to Know

I-Bonds: What Investors Need to Know

Share This:

Investors looking for diversification during market volatility and high inflation often ask their financial professionals about strategies that may be appropriate for their situation. With the Fed Funds rate near zero, and inflation the highest since 1982, A-Series I Bonds have received a lot of attention lately from investors. A-Series I Bonds are appropriately named since the ‘I’ stands for inflation and are a strategy that investors use during a low-rate, high-inflation period as a low-risk investment to achieve a positive return.

I Bond features

I Bonds are designed as low-risk investments that are not bought or sold in the secondary market and can be purchased electronically through Treasury Direct, the U.S. Treasury’s online platform. I Bonds are issued by the U.S. Treasury, making them a higher-returning, lower-risk investment. Here are other features of I Bonds for investors to consider:

  • I Bonds combine a one-year fixed rate with a variable inflation rate to give investors a return plus protect their purchasing power during inflationary periods.
  • If the I Bond is used to pay college tuition and fees at an eligible institution, it is 100% tax-free.
  • Exempt from State and local income tax
  • I Bonds are not exempt from Federal taxation.
  • Are an ‘electronic’ bond
  • It can be purchased as paper certificates only when filing your taxes with a minimum of $50.
  • Investors can purchase up to $10,000 worth of I Bonds through Treasury Direct per year and $5000 worth of I Bonds through their tax return, bringing the purchase to $15,000 per year.
  • Earn a fixed interest rate for the life of the bond and a variable rate that is adjusted for inflation each May and November.
  • Have a 20-year initial maturity with a 10-year extended period for a 30-year maturity.
  • Must be held for one year, and if redeemed before five years from purchase, the previous three months of interest is forfeited.

How the I Bond Rate calculates

The fixed-rate and variable rates are expressed as the composite rate. For example, I Bonds purchased between now and the end of July 2022 may yield over 7% on U.S. Treasury I Bonds for a year.

The combined I Bond rate will never be less than zero, but the combined rate can be lower than the fixed rate. If the inflation rate is negative (deflation), it can offset the fixed rate. The variable rate is based on the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-UC) for all items, including food and energy.

Questions about I bonds?

Although you can’t purchase I Bonds through your financial professional, they can answer your questions and help you understand how I Bonds may be a part of your investing strategy.

© 2024 Trajan® Wealth LLC. Nothing in this blog is intended as investment advice, nor is it an offer to buy or sell any security. Please consult your financial advisor for questions about your personal financial situation. All investments involve risk, including the potential for loss. Trajan Wealth clients and employees may have a position in any of the securities mentioned. Portfolio holdings and other data are subject to change at any time and without notice. Additionally, the above links provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. These materials are for informational and educational purposes and are not designed, nor intended, to apply to any person’s individual circumstances. It does not take into account the specific investment objectives, tax and financial condition, or particular needs of any specific person. Please consult with your legal and/or tax advisor before making any tax-related decisions.