A frequent comment we get from people is that they are frustrated with the extremely low interest rates that they are receiving on their savings accounts. The current rate on a saving account is 0.4%. The current rate on a savings account is .4%. The rates on certificates of deposits (CDs) are not much better at 0.6% for a 12-month CD. Some people may be looking to take some of the profits they made in the stock market and put it on the sidelines for a while but would like some sort of return on their idle cash. The good news is that there is a way to greatly increase the interest rate that you are getting on your idle cash!
Series I Savings Bonds are issued by the United States Government. The I Bond is an inflation protected security that can grow for up to 30 years. The yield on the bond adjusts every 6 months to factor in the current inflation environment. There is a fixed component to the interest rate and a variable component that is based on inflation. Currently the rate on I Bonds is 3.54% (this rate will adjust up or down on November 1, 2021).
While the Series I Bonds will grow in value for up to 30 years, the holder of the bond can cash out any time after holding the bond for at least one year. Also, if the bond is cashed out before 5 years, the bondholder will lose the last 3 months of interest (click this link for more information on holding period for series I savings bonds.)There is no penalty if the bond is held for at least 5 years before cashing out.
Interest on I bonds is taxable at the federal level, but not at the state or local level. Furthermore, in some cases the interest may be exempt from federal taxes if used for higher education expenses. Use this link to see the qualifications for education tax exclusions.
There are two ways to acquire Series I Bonds
- At the time of filing taxes, you can ask your accountant to elect to have up to $5,000 of a refund put into I bonds per year. This method will result in paper bonds being sent to the buyer. You can use your refund to buy savings bonds and designate ownership or co-ownership for someone else, such as a child, grandchild or anyone, or elect a beneficiary using form 8888.
- Treasurydirect.gov allows people to purchase the bonds directly from the US treasury in electronic format. The maximum amount of electronic I bonds that can be purchased in any giving year is $10,000 per person.
Therefore, the total possible amount of Series I Bonds (paper or electronic) that someone can buy in any giving year is $15,000 (depending on the size of your refund).
Use this link to find more information and frequently asked questions regarding Series I Bonds Series I Bond FAQ
Please reach out to us at Chatham Wealth Management if you have any questions on the Series I Bond, or any other financial planning and investment management issues. While Chatham Wealth Management is not able to buy these for our clients, we wanted to highlight the benefits and let people know how they can buy the Series I Bonds. We are happy to perform a complimentary portfolio review for anyone who is interested. You can contact us through our website https://www.chathamwealth.com/, or at 973-635-4275.