Tick, Tick, Tick: 9.62% Guarantee Expiring Soon

If seeing your portfolio in the red has got you feeling anxious, don’t panic. There’s a special type of bond that’s adjusted for inflation, meaning during periods of high inflation — like right now — you can lock in some pretty sweet returns.

But you have to act fast because the high rates won’t last forever. Here’s the skinny on Series I Bonds and how you can join a record number of investors in purchasing this once little-known inflation-proof savings bond — more than $17.5 billion in Series I Bonds were purchased between November and May 2022. That’s compared to $364 million in all of 2020.

What is a Series I Savings Bond?

A Series I Bond is an interest-bearing savings bond that’s issued by the federal government.

What sets these bonds apart from other investments is that they earn a combined fixed interest rate on top of a variable inflation rate to create a composite rate.

The inflation rate is adjusted twice per year.

These bonds are meant to give investors a return in addition to protection from inflation and are an excellent tool to have in your investing arsenal to not only hedge against inflation but to make inflation work for you!

I-Bond Variable Rate

The I-Bond’s variable rate is based on the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) over the six preceding months. This rate is adjusted once in May and once in November.

Currently, the variable rate for Series I savings bonds is 9.62%.

However, since inflation is starting to fall, it’s highly likely a lower rate will be set in October. This means that the 9.62% rate will only last through the end of October 2022, so act now to take advantage of this inflation-adjusted rate.

Once you make a purchase at this rate, it will hold for the first six months you own the I Bond before changing to the adjusted rate.

Most experts are anticipating the new variable rate for Series I Bonds to fall to 6% in November.

How to Buy Series I Savings Bonds

You can quickly and conveniently purchase Series I Bonds by visiting https://www.treasurydirect.gov/.

Once you’re there, you will need to either create an account or log in to an existing account — if you’re creating an account, you’ll need a taxpayer identification number, like your Social Security Number, and an email address, phone number, and United States address — and then follow these steps:

1. Choose BuyDirect.
2. Add your bank information to link your account.
3. Select purchase I Bonds, and click submit.
4. Fill out how much you’d like to invest — you can purchase I Bonds for any amount between $25-$10,000.
5. Click submit, and you’re done.

The limits on purchasing Series I bonds for yourself per calendar year are:

• $10,000 in electronic bonds.
• $5,000 in paper bonds.

What’s the Deal with Interest and Series I Bonds?

Series I Bonds earn monthly interest from the first day of the month they are issued, and this interest is added to the bond’s principal value.

If you are eager to check how much interest you’ve recently earned, you can do so by visiting your online Treasury Direct account. But be warned, interest accrued will not show up until the first day of the fourth month after the bond has been issued.

So, if you purchase a Series I Bond this month, you won’t be able to see how much interest it’s earned until February of next year.

How Are These Bonds Taxed?

You don’t have to pay state and local income tax on interest earned from Series I bonds but you will have to pay federal tax on it.

However, you can defer paying the federal tax until the year you cash in the bond, or it stops earning interest, whichever comes first.

If you would prefer to avoid one large tax bill, it’s a smart idea to pay the interest on the bond as you go.

Important Things to Know About Series I Bonds

Here are some important facts and stipulations to know about Series I Bonds before you invest:

• You must hold your I Bonds for at least one year (12 months).
• If you cash out your I Bonds between 12 months and the end of the fifth year, you’ll lose the three prior months of interest.
• Your I Bond will earn interest for 30 years unless you cash it out before then.
• You wait to get all of your dividends at one time upon cashing in the bond.
• Although electronic I Bonds are the easiest way to start investing, you can also purchase paper I Bonds. However, the only way to purchase paper I Bonds is with your federal income tax refund. The paper bonds come in five denominations, and you can purchase any amount up to $5,000:
  • • • $50
      • $100
      • $200
      • $500
      • $1,000
• You pay face value for the bond, meaning you will pay $100 for a $100 bond, etc.
• You are required to pay federal income taxes on interest earned from Series I Bonds.

Bottom Line

The bottom line is that a 9.62% interest rate is probably too good of a deal to pass up.

So if you’re keen to lock in a near 10% interest rate, take advantage of this inflation-adjusted rate while you can and purchase some Series I Bonds from the federal government; your future self will thank you.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.