Soaring inflation brings about a lot of consternation for consumers, but savers can find a bright spot in Series I savings bonds.
I bonds issued from November 2021 through April 2022 yield an outstanding composite rate of 7.12%, compared with an average yield of 0.06% for bank savings accounts, according to Bankrate.
The rate on I bonds is made up two parts: a fixed rate that stays the same for the life of the bond and an inflation rate that adjusts every six months.
Each May and November, the Treasury Department’s Bureau of the Fiscal Service announces a new fixed rate and inflation rate.
The fixed rate on bonds issued during this period is 0%, so the yield will be less impressive when inflation cools.
There are limits on the amount of I bonds that you can purchase. The maximum you can buy in electronic I bonds through treasurydirect.gov is $10,000 per calendar year.
You can buy an additional $5,000 in paper bonds if you buy them with your income tax refund, for a maximum of up to $15,000.
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To obtain paper bonds, include Form 8888 with your tax return. On the form, you can direct the IRS to issue part or all of your refund in I bonds. The IRS will mail the bonds to you.
You can’t cash in an I bond until you’ve had it for at least 12 months. If you redeem it before five years have passed, you lose the previous three months of interest.
Interest that you earn from an I bond isn’t subject to state or local income tax, and you can defer federal tax until you redeem the bond or it reaches maturity after 30 years, at which point it stops earning interest.
A savings bond is also a gift that keeps on giving. If you want to buy electronic I bonds for someone else, you can purchase them through your TreasuryDirect account and transfer them to the recipient’s account.
You must provide the recipient’s Social Security number, and the recipient must have his or her own TreasuryDirect account.
If you want to direct bonds to someone younger than 18, the child must have a custodial account linked to the account of his or her parent or guardian. A paper bond purchased with your tax refund is giftable, too. On Form 8888, fill in the name of the recipient. The IRS will mail the bond to you. At treasurydirect.gov/indiv/planning/plan_gifts_certificates.htm, you can select a gift certificate to fill out, print and include when you deliver the bond.
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