How do I start investing in bonds? You can invest directly in bonds either over the counter (OTC) or via the Australian Securities Exchange (ASX). In both cases, you'll be required to have a broker or fund manager. OTC bond investing usually requires a high minimal investment (upwards of $500,000).
Australian Government Bonds (AGBs)
issued by the Australian government. They guarantee a rate of return if held until maturity. Exchanged-traded Treasury Bonds (eTBs) give fixed interest payments. Exchange-traded Treasury Indexed Bonds (eTIBs) give interest payments linked to inflation.
Option 1: Buy US Treasury Bonds in the Secondary Market
Interactive Brokers (IBKR) provides the opportunity to invest in T-Bills and Treasury Bonds in the secondary market. Treasury investments are highly liquid and feature low spreads. Additionally, the commission per trade is 0.002% of the Face Value (minimum of $5).
There is no limit on the total amount that any person or entity can own in savings bonds.
The Bottom Line
That said, there is a $10,000 limit each year for purchasing them. There are a number of ways around this limit, though, including using your tax refund, having your spouse purchase bonds as well and using a separate legal entity like a trust.
This composite rate of TreasuryDirect Series I Savings Bond, applied to $10,000 in I bonds, would earn a guaranteed $215 in interest over the next six months (not $430, that's because it's an annualized rate) — but you cannot cash in your bond until you've held it for a year. So why even mention the six-month take?
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.
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.
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.
Individuals, organizations, fiduciaries, and corporate investors may buy Treasury securities through a bank, broker, or dealer.
The Australia 10Y Government Bond has a 3.397% yield. 10 Years vs 2 Years bond spread is 19.2 bp. Yield Curve is flat in Long-Term vs Short-Term Maturities. Central Bank Rate is 3.85% (last modification in May 2023).
The Australia 10 Years Government Bond has a 3.397% yield (last update 6 May 2023 2:15 GMT+0).
All earnings in an investment bond are taxed at the corporate tax rate of 30%. If no withdrawals are made in the first 10 years, no further tax is payable.
Treasury Indexed Bonds are medium to long-term securities for which the capital value of the security is adjusted for movements in the Consumer Price Index (CPI). Interest is paid quarterly, at a fixed rate, on the adjusted capital value.
The U.S. Treasury doesn't let just anyone purchase I bonds, so you'll need to see if you qualify to buy them. You'll need to be one of the following: A U.S. citizen, even if you live abroad. A U.S. resident.
Redeeming Bonds from Abroad
To redeem U.S. Department of Treasury Series EE or E Savings Bonds, the bondholder must execute Form PD-1522 (PDF 202 KB): Request for Payment of U.S. Savings and Retirement Securities. The notarized form must then be forwarded, along with the bonds, to the U.S. Treasury for payment.
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.
EE Bond and I Bond Differences
The interest rate on EE bonds is fixed for the life of the bond while I bonds offer rates that are adjusted to protect from inflation. EE bonds offer a guaranteed return that doubles your investment if held for 20 years. There is no guaranteed return with I bonds.
Buying electronic EE or I savings bonds
TreasuryDirect is the official United States government application in which you can buy and keep savings bonds. To buy a savings bond in TreasuryDirect: Go to your TreasuryDirect account. Choose BuyDirect.
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.
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.
$10,000 limit: Up to $10,000 of I bonds can be purchased, per person (or entity), per year. A married couple can each purchase $10,000 per year ($20,000 per year total). 7.12% interest: The yield on I bonds has two components—a fixed rate and an inflation rate.
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.
Buying paper Series I savings bonds
The bonds may be of different denominations. We use $50, $100, $200, $500, and $1,000 bonds. Again, the amount of your purchase can be any multiple of $50, from $50 to $5,000.