What to know before buying Series I bonds?
I Bonds May Offer a Higher Rate, But Not a Fixed Rate
The cons of investing in I-bonds
There's actually a limit on how much you can invest in I-bonds per year. The annual maximum in purchases is $10,000 worth of electronic I-bonds, although in some cases, you may be able to purchase an additional $5,000 worth of paper I-bonds using your tax refund.
I bonds are great, safe investments. But they're paid out at the end of their 30-year maturities. Yes, you can cash them in after 12 months. If you redeem an I bond within five years of purchase, however, you forfeit the last three months' interest.
You can skip paying taxes on interest earned with Series EE and Series I savings bonds if you're using the money to pay for qualified higher education costs. That includes expenses you pay for yourself, your spouse or a qualified dependent. Only certain qualified higher education costs are covered, including: Tuition.
Once a Series I bond is five years old, there is no interest penalty for redemption. Question: Can you determine what the value of a Series I bond will be in future years? inflation rate can vary. You can count on a Series I bond to hold its value; that is, the bond's redemption value will not decline.
The September I Bond composite rate is 4.28% (US Treasury) which is 2.14% earned over 6 months. The September 2024 I Bond Fixed Rate is 1.30%. The November 2024 I Bond composite rate is projected to go below 3%!
You can cash in (redeem) your I bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest. For example, if you cash in the bond after 18 months, you get the first 15 months of interest. See Cash in (redeem) an EE or I savings bond.
For many investors, the Federal income tax rate is higher than the capital gains tax rate. Not allowed in tax-deferred accounts. Because I bonds are limited to taxable accounts, you can't buy them in an Individual Retirement Account (IRA) or 401(k) plan.
May 1, 2024. Series EE savings bonds issued May 2024 through October 2024 will earn an annual fixed rate of 2.70% and Series I savings bonds will earn a composite rate of 4.28%, a portion of which is indexed to inflation every six months. The EE bond fixed rate applies to a bond's 20-year original maturity.
And as the charts suggest, initial conditions were far more favorable to bond investors at midyear 2024 than they were at midyear 2021, underscoring Vanguard's assertion that bonds are back!
Do I need to report I bonds on my tax return?
Interest from your bonds goes on your federal income tax return on the same line with other interest income.
Is interest income from I bonds taxed as capital gains? No, the interest income earned from I bonds is not considered a capital gain and is therefore taxed differently. Instead, it is taxed as regular income at the federal level and exempt from state and local taxes.
We put a 1099 into your TreasuryDirect account if: You cash a savings bond in TreasuryDirect. (We don't provide a 1099 if you only buy or hold a savings bond.) You hold a marketable security in TreasuryDirect and the security earns interest.
Can I buy I bonds every calendar year? Yes, you can purchase up to $10,000 in electronic I bonds each calendar year. You can also buy an additional $5,000 in paper I bonds using your federal tax return.
This is based on the current savings bond calculator rate which is 4.17%. The calculation is done by multiplying the $100 value by the current rate of 4.17%, providing an annual return of 4.17%. Each year, the $100 value of the bond increases at the same rate and thus after 30 years, the bond is worth $417.18.
| Date the fixed rate was set | Fixed rate for bonds issued in the six months after that date |
|---|---|
| May 1, 2024 | 1.30% |
| November 1, 2023 | 1.30% |
| May 1, 2023 | 0.90% |
| November 1, 2022 | 0.40% |
I bonds' rates have since dipped from their headline-grabbing heights—they were as high as 9.62% in May of 2022—to 4.28% for the current crop. That rate may still look attractive, but I bonds' variable rates—combined with their five-year lockup period—may give you pause.
I Bonds earn interest each month, and the interest is compounded every six months. You can earn interest on them for as long as 30 years, and can cash them out after 5 years without losing interest. You lose only three months interest if you cash them out before you reach 5 years.
Electronic I bonds can be cashed online through TreasuryDirect.gov. Paper I bonds can be cashed online, or they may be accepted by some banks. If you hold an I bond for less than five years, you'll lose three months' interest.
I Bond Rate Set at 4.28% from May 2024 to October 2024 On Wednesday, May 1, the US Treasury Department announced that I bonds issued from May through October 2024 will earn an interest rate of 4.28%, down from the previous rate of 5.27%.
Do I bond rates change after purchase?
You know the fixed rate of interest that you will get for your bond when you buy the bond. The fixed rate never changes. We announce the fixed rate every May 1 and November 1. That fixed rate then applies to all I bonds that we issue during the next 6 months.
No, I Bonds can't lose value. The interest rate cannot go below zero and the redemption value can't decline.
If you don't hold on to your I bond for a full year, you will not receive any interest. You must create an account at TreasuryDirect to buy I bonds; they cannot be purchased through your custodian, online investment account, or local bank. Potential disadvantages include: Maximum investment each year is $10,000.
Unlike I-bonds, TIPS are marketable securities and can be resold on the secondary market before maturity. When the TIPS matures, if the principal is higher than the original amount, you get the higher amount. If the principal is equal to or lower than the original amount, you get the higher original amount.
Tax Benefits for I Bonds
Investing in I bonds offers retirees significant tax advantages. The interest earned on I bonds is tax-deferred, meaning you don't have to pay taxes on the interest until you decide to redeem the bonds.
