Series I Bonds: Safe Investment in Times of Uncertainty

In an economy that has been hit so hard since the pandemic, finding ways to protect money’s value from inflation, invest safely, and earn a good return is challenging. However, there is an opportunity with the Treasury Department’s Series I Savings Bonds.

Safe Investment

This instrument becomes attractive this year for three very simple reasons: first, they are guaranteed by the US government; second, they can be purchased online on the Treasury Department website starting at $25, and on top of that, they are earning 9.62% annual interest if purchased before October 2022. There is also the possibility of purchasing these paper bonds using tax returns, from $50 to $5,000.

An investment in I Bonds can be up to $10,000 per person per calendar year, starting at $25 when purchased online, making them a great gift for momentous occasions like births or graduations, or to build a savings fund for a special purpose in the future.

These Bonds can only be acquired by United States Citizens or Permanent Residents over the age of 18, or on behalf of a minor. This investment must be maintained for at least 12 months; if it is sold after that time but before five years, a penalty equivalent to three months of accrued interest will be applied.

Inflation has reached an all-time high in 2022. Investing in this financial instrument, which will earn 9.62% interest for at least the first six months, is a smart way to preserve hard-earned money’s value.

A few basics

It is important to master several concepts before proceeding with the purchase of an investment in bonds, to ensure that the experience provides the expected results:

A Savings Bond is a financial investment product, with a low risk of losing its value over time. According to the Treasury Department, Series I Bonds are “interest-bearing savings bonds based on a combination of a fixed rate and an inflation rate.” The current interest rate is 9.62% for six months for all I Bonds purchased up to October 2022, counted from the date of purchase. The rate is recalculated every six months.

The Maturity of a bond is the period of time during which the owner of a bond will receive interest on his investment. Series I Bonds have a maturity of 30 years, as they were created to be long-term investments.

When do I receive interest on my bonds?

When investing in bonds, patience is a virtue. Series I Bonds cannot be exchanged before the first year, and a penalty of three months of yield interest must be charged before the fifth year. Therefore, investors should think twice before proceeding with the purchase if they are not sure how soon they will need the money.

At the time the bonds are redeemed, owners receive the original purchase amount, plus interest earned during the entire time they owned the instrument. Earnings are subject to federal tax in the year they are collected, unless the amount is used to cover higher education costs.

The interest rate on these bonds is adjusted twice a year based on inflation, which protects the value of the principal invested. For the first six months, regardless of the month of purchase, the investor earns the interest rate in effect at the time of purchase. The money continues to earn interest until the due date or until collected, whichever comes first, with rates adjusted every six months. It is a safe investment because it is backed by the United States Department of the Treasury.

How do I buy the Bonds?

Only US citizens or permanent residents are eligible to purchase these bonds. Corporate investors are not permitted, with the exception of trusts or estates that may purchase these instruments for their beneficiary.

Those interested in acquiring the bonds must open an account on the website, providing their Social Security Number and other additional information. After registration, parents or guardians can also include the information of their children to buy vouchers in their name or the person who will be the beneficiary in case the purchase is a gift.

It is extremely important to keep all Treasure Direct portal login information in a safe place; otherwise, it will be very difficult to collect the bonuses when the time comes.

Virtual bonuses can be purchased from $25 up to $10,000. Paper vouchers can also be purchased starting at $50 and arrive in the mail. The purchase of bonds using the tax declaration is made when filing the taxes for the year, with a special form for that purpose.

Advantages and Disadvantages of U.S. Savings Bonds for College Savings

Advantage

  • Interest earned is generally exempt from state income tax
  • Interest earned may be exempt from federal income tax if the proceeds of the bond are used to pay for the beneficiary’s qualified education expenses, provided other conditions are met
  • The bonds are backed by the federal government, so they offer a virtually guaranteed rate of return.
  • You have control of the bonds as long as the ownership is in your name.
  • Series EE bonds are purchased for half of their face value, so you can start investing in small amounts.
  • Bonds earn interest for up to 30 years
  • Bonds are treated as a parental asset for federal financial aid purposes

Disadvantages

  • Bond proceeds not used for the beneficiary’s qualified education expenses will be subject to tax by the owner.
  • Qualified education expenses for US Treasury bond purposes, generally include the cost of tuition and fees only, not room and board
  • The maximum annual amount allowed for the purchase of EE bonds is $10,000 per individual and $10,000 for I bonds (EE bonds may be purchased in paper form for half face value; I bonds are purchased at face value). full nominal)
  • Your income must be below a certain level when you cash in the bonds for you to be eligible to exclude earned interest from your federal income tax (you must still add the proceeds of the bond to your income). for the year to determine if you meet that income threshold)

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