Personal Finance Investing
Written by Sarah Sharkey and Tessa Campbell; edited by Laura Grace Tarpley
- What are I bonds?
- Is an I bond a good investment?
- Pros and cons
- FAQs
- How to purchase I bonds
- How to redeem I bonds
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- An I bond is a savings bond issued by the US Department of the Treasury.
- Rates for I bonds issued between November 1, 2023, and April 30, 2024, have a variable rate of 5.27%.
- Each year you can purchase up to $10,000 in electronic I bonds and up to $5,000 in paper I bonds.
Similar to corporate organizations, the US government can issue bonds as a way to raise necessary funds. Buyers of Series I Savings Bonds, more commonly referred to as I bonds, enjoy the security of a fixed return plus protection against inflation.
Here's how these bonds work, whether they're a good investment, and how to buy one.
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What are I bonds?
I bonds are designed to protect your money against the corrosive effect of inflation. Unlike a regular savings bond with a fixed rate, I bond interest rates are regularly adjusted to account for the current inflation rate.
Here's a closer look at the features of this relatively low-risk investment opportunity:
- Interest rate: The composite rate of an I bond incorporates two separate interest rates — a fixed rate of return that remains stable throughout the life of the bond and a variable inflation rate based on the Consumer Price Index (CPI) that changes twice a year.
- Interest payments: You don't collect interest payments regularly from an I bond. Interest is earned monthly and compounded semiannually. In other words, your principal is adjusted to include new interest payments twice a year.
- Amount: You can purchase up to $10,000 in electronic I bonds each calendar year. It's possible to get an additional $5,000 in paper I bonds each calendar year. When combined, you can purchase up to $15,000 in a calendar year. The minimum amount for an electronic or paper I bond is $25 or $50, respectively.
- Duration: I bonds can earn interest for 30 years unless you cash them in early. You aren't allowed to cash in an I bond within one year of purchase. If you cash in an I bond two to five years out, you'll pay a penalty of three months' interest.
- Tax benefits: Interest you earn from an I bond is taxable at the federal level, but it's not taxable on a state or local level. You have the option to pay the taxes on an annual basis, when the bond is cashed, or when the bond reaches maturity.
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Is an I bond a good investment?
As with all investment choices, whether or not an I bond is a good investment depends on your financial goals and risk tolerance.
Chris Stuart, a financial analyst and portfolio manager at Shorepoint Capital Partners, says I bonds are good for conservative investors who don't need to access their cash any time soon. "I bonds really are meant to be used as long-term investments."
Some savers use I bonds to pay for education for themselves, a spouse, or dependents. If you choose to redeem your I bond and use the funds to pay for qualified education expenses, the interest you earn isn't taxable by the federal government.
I bonds pros and cons
Every investment opportunity has advantages and disadvantages. Here's what to know about I bonds.
Pros | Cons |
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I bond frequently asked questions (FAQs)
What is the I bond rate?
For I bonds issued between November 1, 2023, and April 30, 2024 Series 1 Savings Bonds offer a variable rate of 5.27%. This I bond rate includes a fixed rate of 1.30%.
When are I bond rates set?
I bond rates are announced by the Treasury on November 1 and May 1 each year.
How often is interest paid on an I bond?
Bonds earn interest monthly, however, interest is compounded every six months.
How to purchase I bonds
I bonds are issued by the U.S. Department of Treasury. You can purchase up to $10,000 worth of I bonds electronically on the TreasuryDirect website. The site requires you to create an account before you get started.
Additionally, you can purchase up to $5,000 worth of paper I bonds annually with your federal tax refund. If you want to pursue this option, you'll need to file IRS Form 8888 with your tax return and indicate an I bond as your preferred payment method.
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How to redeem I bonds
If you are holding onto an I bond, you'll want to cash it in at some point. With electronic I bonds, the process is as simple as logging onto your TreasuryDirect account. There's a link within your account to cash your bonds. Funds should arrive in your savings or checking account within two business days.
If you have a paper I bond, you'll likely need to send physical copies to Treasury Retail Securities Services with FS Form 1522. Account holders at some banks have the option to cash paper savings bonds at a branch location.
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Sarah Sharkey is a personal finance writer who enjoys helping people make better financial decisions. Sarah enjoys traveling, hiking and reading when she is not writing. You can connect with her on her blogAdventurous Adulting.
Investing and Retirement Reporter
Tessa Campbell is an investing and retirement reporter on Business Insider’s personal finance desk. Over two years of personal finance reporting, Tessa has built expertise on a range of financial topics, from the best credit cards to the best retirement savings accounts.ExperienceTessa currently reports on all things investing — deep-diving into complex financial topics, shedding light on lesser-known investment avenues, and uncovering ways readers can work the system to their advantage.As a personal finance expert in her 20s, Tessa is acutely aware of the impacts time and uncertainty have on your investment decisions. While she curates Business Insider’s guide on the best investment apps, she believes that your financial portfolio does not have to be perfect, it just has to exist. A small investment is better than nothing, and the mistakes you make along the way are a necessary part of the learning process.Expertise:Tessa’s expertise includes:
- Credit cards
- Investing apps
- Retirement savings
- Cryptocurrency
- The stock market
- Retail investing
Education:Tessa graduated from Susquehanna University with a creative writing degree and a psychology minor.When she’s not digging into a financial topic, you’ll find Tessa waist-deep in her second cup of coffee. She currently drinks Kitty Town coffee, which blends her love of coffee with her love for her two cats: Keekee and Dumpling. It was a targeted advertisem*nt, and it worked.
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