Why You Should Consider the Series I Bond (and How to Buy Them)
Originally published: January 2023
Updated: October 2023
Have you heard about the "I-bond" lately? It's the hottest bond to hit the market since sliced bread -- a savings bond from the U.S. Treasury Department with a 4.3% interest rate and enough predictability to make even the most aggressive investor take a look.
New to investing? Know that you very rarely find guaranteed interest rates this high for bond investments. It's like a really well-kept money secret — and I’m breaking it down today on the #FinLit bog.
So what's the deal — What's an I-bond?
The I-bond is a government-backed bond designed to protect your investments from inflation. Unlike investing in the stock market, bonds provide a guaranteed rate of return within a certain window of time, making them a safer and more predictable investment than investing in an individual stock or fund.
In the case of the I-bond, it carries a 4.3% rate of return for six months after the purchase date. You can also check the latest rate on the U.S. Treasury website here.
To be honest, I usually don't invest in bonds myself because I like having access to my money 24/7, but I am considering adding the I-bond to my portfolio because you very, very rarely find a guaranteed rate of return this high! And while the 4.3% interest rate is only guaranteed up to 6 months after the purchase date, that's still long enough to make me think twice (more on this later).
How do bonds work?
To be honest, most bond interest rates are usually pretty low. For example, the EE bond is currently at 0.10% at the time of this writing — but the I bond is different! And it has a lot of people talking (the good kind of talk).
What's the rate of return?
The I-bond guarantees a 4.3% rate of return if purchased now through October 2023, for up to 6 months after the purchase date. Its interest rate is partly based on a fixed rate, partly based on inflation, as measured by something known as the Consumer Price Index (CPI). That's a damn good rate of return for any investment, let alone a bond where the return on your interest is guaranteed -- but it's only guaranteed if you buy through October 2023. After that, the interest rate you receive on the I-bond will adjust twice a year, in May and November. That said, while the interest rate may decrease in the future, there's a strong chance it won't be anytime soon. Many economists expect inflation to rise, which would, in turn, increase (not decrease) that rate of return. Plus, not only are you gaining interest on your investment but the interest on those bonds is compounded twice a year!
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What's this about compound interest?
Unlike with any debt, compound interest on your investments is THE BEST. At a basic level, it means your money is growing on top of any existing growth, which enables you to build wealth much, much quicker. On the I-bond, any interest is earned monthly and compounded semi-annually, meaning twice a year, any interest earned over the previous six months is added to the value of that bond, and then interest grows on that (!!!).
Give me the details
I know what you're thinking, an investment this good sounds too good to be true -- I promise it's the real deal! But there are a few details you should know about. Here are the basics.s
Once you purchase a bond, you can't cash it for at least 12 months, and ideally not for five years. This means you want to be OK with your money stashed away for a bit. If you cash it between 1 and 5 years, you'll lose your last three month's worth of interest. After five years, that interest rate is yours.
You can purchase up to $10,000 per calendar year, and hold the bond for up to 30 years.
There's a minimum purchase amount of $25 for electronic bonds (or $50 for paper bonds)
How do I purchase an I-bond?
Looking to make this smart money move? Here are the steps you can take to purchase an electronic bond.
Note: If you want to purchase a paper bond, you'll need to do that with your tax return by completing Form 8888 -- save yourself the hassle and try the below.
Set up a TreasuryDirect account here —it looks like it’s form the 1990s, but it’s legit. This allows you to purchase all types of bonds, not just the I-bond. You'll need your email address, a taxpayer I.D. (like your social security number), a U.S. address, and your bank account info.
Once you have an account, select "BuyDirect" to find the I bond ("Series I bond") and the amount you'd like to purchase.
Submit your order!
What else should I know?
Feeling generous? You can also purchase an I-bond as a gift! But note the same limit applies, so if you buy I-bonds for yourself and someone else, you’re still restricted tot he $10,000 limit for the calendar year.
You need to be a U.S. citizen, resident or work for a U.S. civilian employee (regardless of where you live)
You must be at least 18 years old to purchase a bond directly, but a parent or custodian can open an account for a minor on their behalf
So there’s the breakdown, money makers! Will you be investing in I-bonds this year? Let me know in the comments below!
