I Bonds – A Potential Investment Tool to Combat Inflation

In 1935, the first “baby bond” was created to encourage Americans to save and participate in government financing.¹ Now, with inflation continuing to be elevated, “I Bonds” have made their way back into headlines as a potential hedge against inflation. Learn more about these bonds to see if they present an opportunity for you.

What are I Bonds and how do they earn interest?

Treasury Series I Savings Bonds (also known as I Bonds) are savings bonds that earn interest based on combining a fixed rate and a variable inflation rate. The fixed rate remains the same throughout the life of the bond and the variable inflation rate is set in early May and November based on the Consumer Price Index (CPI) which measures the overall change in prices paid by consumers over a period of time for a basket of goods and services.

What is the current interest rate?

The interest rate on an I Bond is 9.62% and applies through October 2022. The new rate, which will be
announced in early November, is based on the CPI Index from March through September.

Where can I purchase one?

I Bonds can be purchased in two ways – buy them in electronic form on TreasuryDirect.gov or in paper form using your Federal income tax return.

Is there a minimum or maximum purchase limit?

The minimum purchase for an electronic version is $25 and $50 for a paper version. The maximum purchase for the electronic version is $10,000 and $5,000 for the paper version for each calendar year.

How long can I keep the bond?

I Bonds earn interest for 30 years unless you cash it first. However, you need to hold it for at least one year before cashing it. If you cash the bond before 5 years, you lose the previous 3 months of interest.

What are the tax considerations?

The interest that your bond earns is subject to Federal income tax but not state or local income tax. If you use the money for higher education, it could potentially not be subject to Federal income tax.

How do I add an I Bond to my investment portfolio?

Each individual needs to create their own account at TreasuryDirect.gov. This account will link to your bank account. Once that is established, the information can be added directly into your Jemma Financial Plan.

Interested in learning more? A Jemma Financial Advisor can help you determine if an I Bond makes sense for your investment portfolio.

1. TreasuryDirect.gov