How Do I Purchase an Ibond

16

Series I bonds are a unique type of U.S. government savings bond designed to protect your investment from inflation. They offer a combination of a fixed interest rate and an inflation-adjusted rate, making them an attractive option for conservative investors seeking to preserve purchasing power over time. This article will guide you through the process of purchasing I bonds, highlighting key features, eligibility requirements, and the steps involved.

What Are I Bonds?

Series I bonds are non-marketable, interest-bearing U.S. government securities that are designed to protect investors from inflation. They are backed by the U.S. Department of the Treasury and offer a combination of two interest rates:

• Fixed Rate: This rate remains the same throughout the life of the bond.
• Inflation Rate: This rate is adjusted every six months based on changes in the Consumer Price Index for All Urban Consumers (CPI-U).

The total interest rate is the sum of these two rates. For example, if the fixed rate is 1.2% and the inflation rate is 2.9%, the total interest rate would be 4.1%. This composite rate ensures that the bond’s value keeps pace with inflation over time.

Why Should You Consider Purchasing I Bonds?

Investing in I bonds offers several advantages:

• Inflation Protection: The inflation-adjusted rate ensures that your investment grows in line with rising prices.
• Tax Advantages: Interest earned is exempt from state and local income taxes. Federal taxes can be deferred until redemption, and if used for qualified education expenses, the interest may be completely tax-free.
• Low Risk: Being backed by the U.S. government, I bonds are considered a virtually risk-free investment.
• Flexibility: I bonds can be purchased in various denominations and can be held for up to 30 years, allowing for long-term growth.

Eligibility Requirements

To purchase I bonds, you must meet the following criteria:

• U.S. Citizen or Resident: You must be a U.S. citizen or a resident, including civilians employed by the U.S. government.
• Valid Taxpayer Identification Number: A Social Security Number (SSN) is required.
• Bank Account: A U.S. bank account is necessary for electronic transactions.

Note: As of January 1, 2025, the option to purchase paper I bonds using IRS tax refunds has been discontinued. All new purchases must be made electronically through TreasuryDirect.gov.

Steps to Purchase I Bonds

Follow these steps to purchase I bonds:

1. Open a TreasuryDirect AccountVisit TreasuryDirect.gov and click on “Open an Account.” Choose “TreasuryDirect” as your account type. Provide your personal information, including your SSN, address, email, and bank account details. Create a password and select security questions to protect your account. Upon successful registration, you will receive a confirmation email with your account number.
2. Log In to Your AccountUse your account number and password to log in to your TreasuryDirect account. For added security, you may be prompted to enter a one-time passcode sent to your email.
3. Navigate to the Purchase SectionOnce logged in, select “BuyDirect” from the main menu. Choose “Series I” from the list of available bonds.
4. Enter Purchase DetailsSpecify the amount you wish to invest. You can purchase I bonds in any amount from $25 to $10,000, in any increment down to the penny (e.g., $76.53). Select the bank account from which the funds will be withdrawn and choose the date for the transaction. You also have the option to set up recurring purchases.
5. Review and ConfirmCarefully review your purchase details. Once confirmed, submit your order. Your I bonds will be issued electronically and stored in your TreasuryDirect account, where you can manage them at any time.

Understanding Purchase Limits

Each calendar year, you can purchase:

• Up to $10,000 in electronic I bonds per Social Security Number (SSN) or Employer Identification Number (EIN).
• Up to $5,000 in paper I bonds using IRS Form 8888, though this option has been discontinued as of January 1, 2025.

These limits apply to the total amount purchased for yourself. Additional purchases can be made as gifts for others, subject to the same limits.

Tax Considerations

The interest earned on I bonds is subject to federal income tax but is exempt from state and local taxes. You can choose to report the interest annually or defer it until you redeem the bond. If you use the proceeds to pay for qualified higher education expenses, the interest may be completely tax-free, subject to certain conditions. For more information, consult the IRS guidelines on qualified education expenses.

Redeeming I Bonds

I bonds can be redeemed after 12 months. However, if you redeem them before five years, you will forfeit the last three months of interest as a penalty. After five years, you can redeem them without penalty. The redemption process can be completed through your TreasuryDirect account or by mailing paper bonds to the appropriate address.

Alternatives to I Bonds

While I bonds offer unique benefits, it’s important to consider other investment options:

• Certificates of Deposit (CDs): Offer fixed interest rates for a specified term, providing predictable returns. However, they may not keep pace with inflation.
• High-Yield Savings Accounts: Provide liquidity and higher interest rates than traditional savings accounts but may not offer inflation protection.
• Stocks and Bonds: Offer potential for higher returns but come with increased risk and volatility.

Consider your financial goals, risk tolerance, and investment horizon when choosing between these options. For beginners, it’s advisable to consult with a financial advisor to determine the most suitable investment strategy.

Conclusion

Purchasing I bonds is a straightforward process that can serve as a valuable component of a diversified investment portfolio. Their inflation protection, tax advantages, and low-risk nature make them an appealing choice for conservative investors. By following the steps outlined above, you can easily purchase I bonds through TreasuryDirect.gov and begin benefiting from their unique features. Remember to stay informed about current interest rates and purchase limits to maximize the advantages of investing in I bonds.

Related topics:

• How Do You Cash Out Savings Bonds
• How Do You Buy Series I Bonds
• How Do You Buy Savings Bonds