Treasury I Bonds are a type of savings bond that is offered by the United States government. They are issued in denominations of $50, $75, $100, $200, $500, $1,000, and $5,000. I Bonds have a fixed rate of interest for 20 years and earn interest for up to 30 years. The interest on I Bonds is exempt from state and local taxes.
The setting of I Bonds
I Bond rates are set twice a year: once in May and once in November. The rate is based on the yield of the 10-year Treasury note at the time of the bonds’ issuance. The current rate for I Bonds is 0.50%. This means that if you purchase a $100 I Bond, it will earn $0.50 in interest each year.
I Bonds can be purchased directly from the U.S. Treasury or through most financial institutions, such as banks and credit unions. I Bonds are sold at face value, so a $100 I Bond costs $100. There is no minimum purchase amount, but there is a maximum limit of $5,000 per person, per year.
I Bonds -Safe Investment
I Bonds are a safe investment because they are backed by the full faith and credit of the United States government. They are also one of the few investments that offer protection against inflation. When inflation goes up, the interest rate on I Bonds increases as well, which means that your investment will be worth more in the future.
Great Way to Save the Future
I bonds are a great way to save for the future and protect yourself from inflation. With an I bond, you earn both a fixed rate of interest and a rate that changes with inflation. Twice a year, we set the inflation rate for the next 6 months. This makes I bonds a great option for long-term savings.
I Savings Bonds earn interest monthly. Interest is compounded semiannually, meaning that every 6 months we apply the bond’s interest rate to a new principal value. The new principal is the sum of the prior principal and the interest earned in the previous 6 months. This process continues throughout the life of the bond, ensuring that you earn a steady return on your investment.
Same Fix Rate
The fixed rate on an I bond remains the same for the entire 30-year life of the bond. The rate is set when the bond is issued and does not change regardless of changes in market interest rates.
The inflation-adjusted rate also called the composite or combined rate is a variable rate that changes every six months. It is equal to the sum of the fixed rate and a semi-annual inflation rate. The semiannual inflation rate is based on changes in the Consumer Price Index for Urban Consumers (CPI-U).
The interest rate for an I Bond is composed of two parts: a fixed rate and an inflation-adjusted rate. The fixed-rate remains the same for the life of the bond, while the inflation-adjusted rate changes every six months in response to changes in the Consumer Price Index (CPI).
You can view I Bond rates in two ways:
Matrix showing fixed rates, inflation rates, and combined rates together (PDF)
Separate tables for fixed rates, inflation rates, combined rates
The matrix is a good way to see how the fixed and variable rates have changed over time, while the separate tables can be helpful if you want to compare current rates to historical ones.
When looking at the matrix, you’ll notice that there are three types of rates: fixed, inflation-adjusted, and combined. The fixed rate is the interest rate that remains constant for the life of the bond. The inflation-adjusted rate is variable and changes every six months in response to changes in the CPI. The combined rate is the sum of the fixed rate and the inflation-adjusted rate.
The current I Bond interest rates are as follows:
- Fixed Rate: 0.50%
- Inflation-Adjusted Rate: 1.68%
- Combined Rate: 2.18%
I Bonds How To Buy
Electronic I bonds: We pay automatically when the bond matures (if you haven’t cashed it before then).
Paper I bonds: You must submit the paper bond to cash it.
When an I bond reaches maturity, we will notify you and provide instructions on how to cash it in. If you do not want to wait until the bond matures to receive your money, you can always cash it in early. However, there is a penalty for cashing in an I bond before it reaches five years old- you will forfeit the last three months of interest earned. After five years, you can cash in your I bond at any time without penalty.
I-Bonds Rates & Term
I-Bond rates are fixed for 20 years and adjust every 6 months. I-Bond terms are 30 years. If you cash in an I-Bond before 5 years, there is a penalty.
I-Bond earnings are exempt from state and local taxes, but federal taxes apply when you cash in your bonds.
You can buy I-Bonds at Treasury Direct. The minimum purchase is $25, and the maximum is $10,000 per year (per Social Security Number). There is no maximum balance for how many I-Bonds you can own.
The current rate for I bonds is ____%. The next rate change will be on _____.
Penalty for Cashing Out I-Bonds Early
If you cash in your I-Bond before 5 years, you will forfeit the last 3 months of interest. For example, if you cashed in an I-Bond on September 1st, you would only get the interest that accrued from June 1st until August 31st.
However, there is no penalty if you cash in your I-Bond after 20 years or because you need the money for certain qualified education or medical expenses.
I-Bond Tax Benefits
I-Bond earnings are exempt from state and local taxes, but they are subject to federal taxes. You can choose to pay taxes either when you cash in your bonds or when they mature.
If you cash in your bonds before they mature, you will owe federal taxes on the interest that has accrued up until that point. For example, if you cashed in an I-Bond on September 1st, you would owe federal taxes on the interest that accrued from January 1st until August 31st.
You can also choose to pay taxes when your bonds mature. In this case, you would not owe any federal taxes until the bonds matured 20 years later. However, you would still owe state and local taxes (if applicable) on the interest that accrues each year.
I-Bond Income Limits
There are no income limits for buying I-Bonds. However, there are income limits for tax benefits.
If your modified adjusted gross income (MAGI) is above $77,200 ($116,300 for married couples filing jointly), you will owe federal taxes on all of the interest that accrues each year, regardless of when you cash in your bonds.
If your MAGI is below $77,200 ($116,300 for married couples filing jointly), you will only owe federal taxes on the interest that accrues when you cash in your bonds.
I Bonds vs Tips
I-Bonds are a type of savings bond offered by the U.S. government. I-Bonds earn interest at a fixed rate, plus an adjustable rate that is tied to inflation. The current interest rate for I-Bonds is 2.06%.
Tips are also a type of bond, but they are issued by corporations rather than the government. Tips generally have a lower interest rate than I-Bonds, but they may be a good option for investors looking for stability and income. The current yield on 10-year Tips is 1.75%.
FAQs
What Are I Bonds?
I Bonds are a type of savings bond offered by the U.S. government. I-Bonds earn interest at a fixed rate, plus an adjustable rate that is tied to inflation. The current interest rate for I-Bonds is 2.06%
HOW DO I BUY I BONDS?
To buy I Bonds, you need to open a TreasuryDirect account. You can do this online at https://www.treasurydirect.gov/. The minimum purchase is $25, and the maximum is $10,000 per year (per Social Security Number).
WHERE CAN I CASH US SAVINGS BONDS?
You can cash in US savings bonds at most local banks. However, it’s important to note that not all banks offer this service. You can search for a bank that does this on the TreasuryDirect website.
Final Words -Treasury I Bonds -Best Mean of Investment
Treasury I Bonds are one of the best options for investors looking for stability and income. The current interest rate is 2.06%, and there is no maximum balance for how many I-Bonds you can own. I-Bonds are also a great option for investors who want to defer taxes on their investment earnings.
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