I bonds earn interest from the first day of the month you buy them. Twice a year, we add all the interest the bond earned in the previous 6 months to the main (principal) value of the bond. That gives the bond a new value (old value + interest earned).
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.
You must own the bond for at least five years to receive all of the interest that is due. You cannot cash out an I bond before holding it for a year; if you do so after that point (but before five years), you forfeit three months of interest.
The December 2022 I bond composite rate is 6.89% (US Treasury) which is 3.45% earned over 6 months. Your $100 investment becomes $103.45 in just 6 months!
You can hold your bond once it reaches maturity, but you won't earn any additional interest. On one hand, you can't spend a savings bond without redeeming it, so the value of your bonds would be considered "safe" from that standpoint.
I Bond Cons
The initial rate is only guaranteed for the first six months of ownership. After that, the rate can fall, even to zero. One-year lockup. You can't get your money back at all the first year, so you shouldn't invest any funds you'll absolutely need anytime soon.
inflation rate can vary. You can count on a Series I bond to hold its value; that is, the bond's redemption value will not decline.
It has been a long time coming, but 2023 looks to be the year that bonds will be back in fashion with investors. After years of low yields followed by a brutal drop in prices during 2022, returns in the fixed income markets appear poised to rebound.
November 1, 2022. Effective today, Series EE savings bonds issued November 2022 through April 2023 will earn an annual fixed rate of 2.10% and Series I savings bonds will earn a composite rate of 6.89%, a portion of which is indexed to inflation every six months.
If you're looking to diversify your portfolio amid the sluggish stock market right now, you might consider Series I bonds as a safe long-term investment with a reliable return. For most people, long-term investing in low-cost index funds is the best path toward financial independence.
You can get your cash for an EE or I savings bond any time after you have owned it for 1 year. However, the longer you hold the bond, the more it earns for you (for up to 30 years for an EE or I bond). Also, if you cash in the bond in less than 5 years, you lose the last 3 months of interest.
How long will the money be locked in if you purchase an I bond? I bonds earn interest for 30 years, as long as you don't cash them in before then. You need to hold them for at least one year, and if you redeem them after less than five years, you forfeit the previous three months of interest.
You can't access the money for at least one year and there's a penalty for redeeming I bonds within five years. If you cash in your I bonds before that five-year mark, you'll lose the previous three months of interest.
Series EE and I bonds mature 30 years from their issue date.
The composite rate for I bonds issued from November 2022 through April 2023 is 6.89%.
Effective today, Series EE savings bonds issued May 2022 through October 2022 will earn an annual fixed rate of . 10% and Series I savings bonds will earn a composite rate of 9.62%, a portion of which is indexed to inflation every six months.
It's not as strong as the 9.62% rate I bond owners enjoyed from April 2022 until the end of October 2022, but it's tough to find a guaranteed rate approaching 7%, and that's what you'll get for your first 6 months if you buy I Bonds between November 2022 until the end of March 2023.
I-bonds help offset inflation
As of November 2022, you'll earn an interest rate of 6.89 percent. This rate will change again in May 2023. But before diving all in on I-bonds, speak with a financial adviser to understand future I-bond rate predictions and ensure it's a sound personal finance decision for you.
A given Social Security Number or Employer Identification Number can buy up to these amounts in savings bonds each calendar year: $10,000 in electronic EE bonds. $10,000 in electronic I bonds. $5,000 in paper I bonds that you can buy when you file federal tax forms.
Interest earned on I bonds is exempt from state and local taxation, but owners can also defer federal income tax on the accrued interest for up to 30 years.
One of the drawbacks of I bonds is you can't redeem them for at least one year, said George Gagliardi, a CFP and founder of Coromandel Wealth Management in Lexington, Massachusetts. And if you cash them in within five years, you'll lose the previous three months of interest.
The biggest red flag for short-term investors: You can't redeem these bonds for a year after you purchase them, and you'll owe a penalty equal to three months' interest if you cash out any time over the first five years of owning the bond.
Normally, you're limited to purchasing $10,000 per person on electronic Series I bonds per year. However, the government allows those with a federal tax refund to invest up to $5,000 of that refund into paper I bonds. So most investors think their annual investment tops out at $15,000.
I bonds have never been popular due to low interest and low inflation rates. However, inflation has increased, making these safe bonds more attractive. The cap at $10,000 and the annual interest of $689 might not be worth the hassle of owning and keeping up with a separate account.