They are sold at half their face value and are worth their full value at maturity. Series I bonds are sold at face value and mature after 30 years.
You can buy I bonds in electronic form, at face value, after you open a TreasuryDirect® account. Purchase prices start at $25, and you can buy in any amount above that up to $10,000 per person, per calendar year. You also can buy an I bond in paper form, through the Tax Time Purchase Program.
Cons of Buying I Bonds
I bonds are meant for longer-term investors. 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.
The price of a bond can fluctuate in the market by changes in interest rates while the face value remains fixed.
For retirees, I bonds represent a robust portfolio option in 2023 – and savvy investors know it. Take the March 2023 I bond composite rate, which stands at 6.89%. That's a good and safe return for retirement investors, who know only too well that capital preservation is the name of the game in retirement.
The composite rate for I bonds issued from May 2023 through October 2023 is 4.30%.
Investors find I bonds attractive because they provide a helpful way for your portfolio to keep up with inflation. Rates on these bonds adjust each November and May. The rate you receive is locked in for six months after the date of your purchase.
I bonds: A low-risk investing strategy
Because I bonds are backed by the U.S. government they carry very little risk. Plus, you'll have the added bonus of protecting your cash's purchasing power.
Including bonds in your investment mix makes sense even when interest rates may be rising. Bonds' interest component, a key aspect of total return, can help cushion price declines resulting from increasing interest rates.
Variable interest rates are a risk you can't discount when you buy an I bond, and it's not like you can just sell the bond when the rate falls. You're locked in for the first year, unable to sell at all. Even after that, there's a penalty of three months' interest if you sell before five years.
TIPs offer comparable inflation protection relative to I Bonds at higher yields, a significant advantage. TIPs are also somewhat riskier, more volatile securities, with quite a bit of interest rate risk. Both asset classes are good investments, but TIPs are slightly better, due to their higher yields.
Step 1: Max out your $10,000 per person calendar year limit conventionally. You can buy $10,000 yourself and your spouse can buy $10,000 through their Treasury Direct login. Step 2: You could buy $10,000 or more in gift I Bonds in May that you could deliver to your spouse in future years.
Keep in mind that you don't earn interest on your I Bonds until you complete the month, so cash out early in the month. If it's near the end of the month, plan to cash out after the 1st of next month so you get the interest you've earned.
U.S. Savings Bonds mature after 20 or 30 years, depending on the type of bond: Series EE bonds mature after 20 years. They are sold at half their face value and are worth their full value at maturity. Series I bonds are sold at face value and mature after 30 years.
I bonds also have important tax advantages for owners. For example, interest earned on I bonds is exempt from state and local taxation. Also, owners can defer federal income tax on the accrued interest for up to 30 years.
Series I savings bonds are often considered a hedge against inflation. The current composite rate for I bonds is 4.3%. You can't buy more than $10,000 in electronic I bonds for yourself annually.
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.
Historically, stocks have higher returns than bonds. According to the U.S. Securities and Exchange Commission (SEC), the stock market has provided annual returns of about 10% over the long term. By contrast, the typical returns for bonds are significantly lower. The average annual return on bonds is about 5%.
The 3.79% forecast is assuming that the Treasury keeps the fixed rate for new I Bonds at 0.4%, as it is now, Pederson said. He expects the fixed rate to hold at 0.4% or possibly tick a bit higher. The Treasury has been known to occasionally tweak the fixed rate when new rates for the savings bonds are announced.
In periods of high inflation, earnings from traditional savings accounts and bonds typically fall short. Investors can take advantage of higher interest rates by investing in Series I Savings Bonds from the U.S. government. These bonds provide a guaranteed return based on inflation and income tax benefits.
The “I” stands for inflation. The interest rate on I Bonds is directly correlated with inflation. If inflation is high, the interest rate is high. If inflation is low, the rate is low.
Key Points. The variable rate on I bonds will drop in May. Those who want short-term returns might prefer to buy I bonds in April to lock in higher rates. Long-term investors might be better served by waiting.