You can purchase electronic I Bonds directly from the Treasury Department. You can buy up to $10,000 in one year, or you can create a laddered portfolio.
Bonds are debt instruments that governments and corporations issue to raise money. Inflation-indexed bonds, such as I Bonds, allow you to earn interest and protect your savings from rising inflation.
How to Buy I Bonds Online
If you’re looking for a safe, reliable investment that will grow your money at an incredibly low risk, I bonds are hard to beat. The current 6.89% interest rate is way better than you’ll find in CDs or high-yield savings accounts. You can buy I bonds online through TreasuryDirect.
Once you’ve entered your bank information and checked to make sure the account number is correct, select “Submit.” You’ll get a confirmation page that lists all the purchase information. If everything looks good, click the Deliver button to send the bond(s) to your recipient.
Note that your annual limit for electronic Series I savings bonds is $10,000. This includes any bonds you buy for yourself or receive as gifts. Paper bonds purchased with federal tax refunds count toward the limit, too. But the good news is that your earnings from redeemed bonds are exempt from state and local taxes. You’ll only have to pay federal taxes on the interest when you redeem them.
Is I Bond a Good Investment?
While they’re safe investments backed by the federal government, I bonds aren’t a high-yield investment. They’re best for people who want to protect their portfolios from inflation, said Micheal Collins, founder and CEO at WinCap Financial.
They’re also good investments for people who want to save for a large expense, such as a home down payment or wedding costs. You can buy up to $10,000 worth of them per year. Married couples can purchase up to $25,000 together, and parents can invest in their children’s I-bond accounts.
But with interest rates skyrocketing, other savings options can offer better yields, including Treasury bills and CDs. And there are some drawbacks to I-bonds, such as the one-year lockup and the early withdrawal penalty—you must wait five years before cashing in a bond, or you forfeit the last three months’ interest
Plus, interest from I-bonds isn’t tax-deductible at the state and local levels, but federal taxes are deferred until you cash them in or they reach their final maturity, which is after 30 years.
Is I Bond a Safe Investment?
I bonds are a safe investment for people with short-term savings goals, but they’re not a great option for retirees seeking income. The interest they earn is tied to inflation and can fall as inflation rises.
They also compound semi-annually rather than daily like most savings accounts. Unless you plan to cash in the bond within 30 years, the interest won’t be paid until you file a tax return.
If you gift an I bond to a child, the interest is taxed at their rate rather than yours under kiddie tax rules. This can be advantageous if the child plans to use the asset for a major purchase and doesn’t want to pay taxes on the earnings now.
When purchasing I bonds online, it’s important to triple-check your information and banking details before you submit the order. Jarrod Sandra, founder of Chisholm Wealth Management in Crowley, Texas, explains that a single error could take months to correct.
Is I Bond a Good Investment for Children?
If you’re looking to help your children start investing, there are several investment accounts available for them. These accounts allow you to invest in different financial assets like stocks and bonds. Investing for kids is a great way to teach them about money and prepare them for their future.
The best investment for kids will depend on their needs and interests. For example, if they’re planning for college, a 529 plan may be the best option. This account offers tax-free growth and withdrawals for qualified education expenses. Other investment options include certificates of deposit and custodial IRAs.
Regardless of the type of investment account, it’s important to make sure you have enough money saved for retirement and emergencies. Also, be sure to take into account how the various investment accounts will impact your child’s tax bill and financial aid applications. If you’re unsure about how to begin investing for your children, consider working with a financial adviser.