What Are I-Bonds?

Inflation has made Series I savings bonds enormously popular with risk-averse investors. So how do they work?

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Series I savings bonds are drawing a lot of attention. Thanks to high inflation, I-bonds issued from now until May 1, 2023 offer a 6.89% interest rate over the next six months. We’ve compiled answers to frequently asked questions about I bonds.

How is the interest rate for I bonds determined?  The composite rate has two parts: a fixed rate, which remains the same for the life of the bond, and an inflation rate, which is based on the consumer price index. Each May 1 and November 1, the U.S. Treasury Department announces a new fixed rate and inflation rate that apply to bonds issued during the following six months. The inflation rate changes every six months from the bond’s issue date. If your bond is issued in November 2022, for example, the current inflation rate will apply through April 2023.  The fixed rate for I bonds issued from May through October 2022 is 0.4%—and that will never change for as long as you hold the bond (the term is 30 months). 

What will the interest rate on I bonds be next? The formal announcement will come on November 1. But a solid guess can be hazarded. David Payne, Kiplinger’s staff economist, is forecasting “at least” 6.5%. The 6.5% value reflects the inflation component, derived from the October 13, 2022 Consumer Price Index. But he expects that, based on precedent, the Treasury Department may add a few tenths to the fixed rate component (now 0%), perhaps even as much as an additional 0.5%. 

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How does interest accrue? The bond earns interest monthly from the first day of the month of the issue date, and interest is compounded semiannually. Interest is added to the bond’s principal value. You can’t redeem an I bond in the first year, and if you cash it in before five years have passed, you forfeit the most recent three months of interest. If you check your bond’s value at TreasuryDirect.gov (opens in new tab) within the first five years of owning it, the amount you’ll see will have the three-month penalty subtracted from it. Consequently, when you buy a new bond, interest does not show until the first day of the fourth month following the issue month. If your bond has an October 2022 issue date, for example, interest is first posted in February 2023.

How much can I buy?  An individual can buy up to $10,000 per calendar year in electronic bonds through TreasuryDirect.gov. In addition, you can buy up to another $5,000 each year with your tax refund (so for those who are married filing jointly, the limit is $5,000 per couple). And these will be issued on paper, with Helen Keller, Chief Joseph, or George C. Marshall on them (among others). You can even designate a beneficiary or co-owner through this program, which you can read more about from the IRS. So, crank up that withholding at work or plan on putting in some extra money to the IRS when you file next year—basically, prefunding your bond purchase.

That’s just for the individual, though. A range of other entities can purchase I bonds, including:

  • Corporation
  • Limited Liability Company (LLC)
  • Sole proprietorship
  • Partnership
  • Professional Limited Liability Company (PLLC)
  • Deceased estate
  • Living estate (court-appointed legal guardian of the estate of another living person)
  • Trust

Can I buy I bonds for my kids? Yes. A parent or guardian can set up a custodial TreasuryDirect account for a child younger than 18. You can purchase I bonds for your child within the minor account, which you must link to your own TreasuryDirect account. Other people can send I bonds as gifts to your child’s account, but you will have to supply your child’s Social Security number and TreasuryDirect account number to the giver. As with an adult, the purchase limit for a child—including gifts received—is $10,000 per calendar year for electronic I bonds. 

How are I bonds taxed?  I bond interest is free of state and local income tax, and you can defer federal tax until you file a tax return for the year you cash in the bond or it stops earning interest because it has reached final maturity (after 30 years), whichever comes first. You can also report the interest every year, which may be a smart choice if you’d rather avoid one large tax bill years down the road. If you use I bond proceeds to pay for certain higher-education expenses for yourself, your spouse or your dependents, you may avoid federal tax. But you must meet several requirements to be eligible. Among them, the bond owner must have been at least 24 years old by the issue date and have income that falls below specified limits. See more detail in Taxes on I Bonds in 9 Common Situations

How do I navigate TreasuryDirect?  TreasuryDirect has been widely criticized for its unwieldy format for years. A new home page launched in October has given it a fresh look, but when it comes to actually using its tools to buy bonds or otherwise actually interact, it’s back to the old system, which some have described as a time portal back to MySpace. What can you do?

  • Have all your information handy, including the bank account you intend to link (routing and account numbers) and your state driver’s license or equivalent government ID.
  • Link a bank account that you plan on using for a while
  • Don’t try to use a password manager
  • Don’t be hasty; mistyping characters could be unfixable Once you are logged into TreasuryDirect, be careful to follow the site’s directive to not use your browser’s back, forward or refresh buttons. You should use the navigation in the site itself. Make a mistake here and you will be logged out of TreasuryDirect.

I opened a TreasuryDirect account years ago and have lost my account number. What do I do? Go to www.treasurydirect.gov/RS/UN-Forgot.do (opens in new tab) and fill in your personal information. It must match exactly what TreasuryDirect has on file—so if you have moved, for example, you may have to list a previous address. If the information matches, you’ll answer three security questions. If you respond successfully, you’ll receive an e-mail with your account number.

I’m having trouble buying or managing bonds with the TreasuryDirect website. How can I get help? You can call TreasuryDirect at 844-284-2676, but given the influx of interest in I bonds, be prepared to wait on hold. If the number of callers in the queue becomes too great, an automated message may notify you that TreasuryDirect is no longer accepting calls for the day. You can reach TreasuryDirect by e-mail at Treasury.Direct@fiscal.treasury.gov, but the TreasuryDirect website recently noted that e-mail communication is being temporarily limited because of heavy contact volumes. To get a response, you must have a pending case and include your case number in the e-mail subject line.

Lisa Gerstner
Contributing Editor, Kiplinger's Personal Finance

Lisa has spent more than15 years with Kiplinger’s Personal Finance and heads up the magazine’s annual rankings of the best banks, best rewards credit cards, and financial-services firms with the best customer service. She reports on a variety of other topics, too, from retirement to health care to money concerns for millennials. She has shared her expertise as a guest on the Today Show, CNN, Fox, NPR, Cheddar and many other media outlets around the nation. Lisa graduated from Ball State University and received the school’s “Graduate of the Last Decade” award in 2014. A military spouse, she has moved around the U.S. and currently lives in the Philadelphia area with her husband and two sons.

With contributions from