I Bonds- Treasury Securities for Inflation

Inflation is on the forefront of everyone’s mind currently. Inflation is having an effect on everything and everyone. Commonly we think about inflation pushing up the prices of the things we are buying or hurting us in the stock market, but one area we can easily forget about is our savings accounts. Our savings accounts, while not losing any dollars, are losing purchasing power which can be damaging down the road. One way to insulate our savings account from losing purchasing power is through the purchase of Series I Bonds from the Treasury. 

What are I Bonds?

I Bonds are savings bonds that earn a combined interest of the rate of inflation and a fixed interest rate for the life of the bond. Through the end of October 2022, a I Bond is paying over 9% in interest. 

When is interest paid?

Interest is accrued monthly, but compounded semi-annually, meaning that the rate will change twice a year and interest is added to the principal value of the bond. The next rate will be updated in November 2022. 

Is it taxable?

Federally, interest is taxable at redemption. Interest is not taxed at the state level. Some exclusions apply like financing education. 

How much can be purchased? 

An individual can purchase up to $15,000 annually, $10,000 electronically through Treasury Direct and $5,000 in paper form through a tax return. 

How do redemptions work?

I Bonds have a 30-Year maturity, but can be redeemed after 12 months. If a bond is redeemed within 5 years, the investor will forfeit the last 3 months of interest. If redeemed after 5 years, there is no penalty. 

I Bonds are a worthwhile solution for investors with cash in savings accounts that they don’t need in the coming year. If you are interested in purchasing an I Bond for your savings or interested in learning more if this is a good option for you, contact us to review your situation.