What Are Treasury Series “I” Bonds & Why Owning Them Is A Great Idea
It is pretty simple: Treasury Series "I" Bonds or series "I" US Saving bonds are very useful and you should likely own some.
They also might be the best kept secret in the 21st century American economic history.
Here is the long and the short of it. Treasury I Bonds are:
Virtually risk free
Backed by the US government
Their value doesn't go down
They offer tax benefits
And they presently pay a ridiculously high rate of interest.
Now it is important to state here that actually they aren't that little known. There has been a veritable flood of interest in I Bonds over the last 3-4 months as high inflation becomes not just "not transitory" but could be entrenched.
We need to make a formal mea culpa here.
We have been meaning to get to this topic for months but have continued to get side tracked. What can we say? We have prioritized understanding the terrible war in Ukraine, the incipient global food crisis and the tandem collapse in bonds and stock prices.
We made some tough calls but even though we felt good about most of them at the time, we still feel remiss on this front.
If you have strong feelings about our prioritization or would like more (or less) of one thing or another please email us at contact@pebble.finance and give us hell.
Anyway, don't fret. It isn't too late either. As you are about to find out, I Bonds currently yield 9.6% through October......
The details:
(they are, like most things having to do with the government, more complicated than they need be)
Amusingly, you can only buy the bonds through a TreasuryDirect.gov website which, despite its appearance, it is a real website for the US government.
You are limited to $10,000 per year though you can add another $5,000 if you use your tax return to purchase the additional amount.
You can gift I Bonds to others. You can also buy them at the start of the next calendar year no matter when you bought them the previous year. So you could purchase $10K in May 2022 and another $10K January 2023.
I Bonds mature after 30 years, and reset their interest rates every 6 months to whatever the official rate of inflation is at that time. In other words, be aware. Today's 9.2% will change and could also drop in the months and years ahead.
The rate you initially get is good for 6 months from the start of the month you purchase them. For example, if you buy an I bond on June 1, 2022, the 9.62% would be applied through December 1, 2022.
Interest is compounded semiannually.
There is zero commission or fees.
You must hold these bonds for at least a year. So only use capital you are prepared to lock up.
If you cash out after a year and before 5 years you will lose the last 3 months of interest so be aware of that particular reality as well.
Also helpful to know is that the rate of inflation can be negative, the rate of return on I Bonds can never be negative.
Interest on these bonds is exempt from all state and local income taxes.
It can also be exempted from Federal Income tax but that is more complicated and you should consult your accountant. If you don't have one, you may want to get one.
You actually can choose to pay taxes on the interest now or defer it until you sell the bonds themselves. This might be particularly advantageous if you have gifted the Series I Bonds to a child or someone else with little to no income.
Have more questions?! Here is the Treasury Department's own FAQ page.
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