Hot Topic: Series I Savings Bonds

Jul 28, 2022 | Everyday Finances

Over the past few months, inflation has continued to rise. Standing out from the sea of negative inflation-related headlines, however, is one “positive” one: the rise in popularity of Series I savings bonds. In May 2022, the semiannual interest rate of a Series I savings bond increased to 9.62%, up from 7.12% and 3.54% in November 2021 and May 2021 respectively. This is an opportunity for income, especially during a year where we have seen the market move into bear market territory. Below we explain what Series I savings bonds are and what you should know about them.

 

 

What Is a Series I Savings Bond?

Series I savings bonds are bonds issued by the US government that earn interest based off a fixed and variable rate. The variable rate is determined by the inflation rate and adjusted semiannually (every May and November). Simply put, the bonds’ interest payments fluctuate every six months with inflation.

Series I Bond 101

Below is a list of some key Series I bond facts:

  • To purchase a Series I bond, you must create a TreasuryDirect account.
    • Note: SageVest cannot buy Series I bonds on your behalf.  Accounts must be created by you, and purchases completed by you.
    • Many people have described the website as difficult to navigate and having common technology disruptions.
  • Each individual can only purchase up to $10,000 in electronic Series I bonds each calendar year.
    • Spouses are allowed to purchase $10,000 each.
    • Refunds associated with mistakenly purchasing more than $10,000 of Series I bonds have been reported to take up to 12-16 weeks.
  • Individuals can purchase an additional $5,000 of paper I bonds in the same calendar year by using their federal income tax refund.
  • Series I bonds are 30 year bonds but can be cashed after 1 year. However, if you cash the bond before holding it for 5 years, you will forfeit the last 3 months of interest payments.
  • Interest paid on these bonds is generally tax-free at the state and local level but taxable on the federal level.
    • You can defer federal income tax until you redeem the bond.
  • The variable rate which is based on inflation resets semiannually every May and November.

Here are questions to consider if you are thinking about purchasing a Series I savings bond:

  • Will you need the money in the next 5 years?
    • As mentioned, if redeemed before the 5 years, you will forfeit some interest, so it’s important to consider if there are better investment options for you.
  • Is the amount of income worth the effort of establishing a TreasuryDirect account?
    • 9.62% interest on a $10,000 investment equates to $962 of interest per year on a $10,000 investment. Income earned will vary as the rates are reset twice a year.  You need to decide if this amount of income is worth opening and administering a new account.
  • Are you willing and able to self-manage the account?
    • As mentioned, we cannot set-up or manage your TreasuryDirect account on your behalf.
  • How many years are you from retirement?
    • If this money is for long-term retirement objectives, investing in a diversified index could increase your upside potential.
  • Where do you anticipate inflation rates to go?
    • Since the variable rate is directly tied to inflation, the interest rate you earn on these bonds can change quickly.
    • A little over one year ago in May 2021 these bonds were earning 3.54%.

At SageVest Wealth Management we strongly believe in keeping our clients fully aware of their investment and financial options. We don’t subscribe to one-size-fits-all advice.  Hence, we are happy to discuss any questions you may have, including whether or not a Series I savings bond has a place in your investment portfolio.

 

Prepared by SageVest Wealth Management. Copyright .
Standard Disclosure

The information contained herein is obtained from sources believed to be reliable, but its accuracy or completeness is not guaranteed. This article is for informational purposes only. The views expressed are those of SageVest Wealth Management and should not be construed as investment advice. All expressions of opinions are subject to change and past performance is no guarantee of future results. SageVest Wealth Management does not render legal, tax, or accounting services. Accordingly, you, your attorneys and your accountants are ultimately responsible for determining the legal, tax and accounting consequences of any suggestions offered herein.

In accordance with IRS CIRCULAR 230, we inform you that any U.S. Federal tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used by a taxpayer, for the purpose of (a) avoiding penalties under the Internal Revenue Code or that may otherwise be imposed on the taxpayer by any government taxing authority or agency, or (b) promoting, marketing or recommending to another party any transaction or matter addressed herein.

The provision of a link to any third party website does not mean that SageVest endorses that website. If you visit any website via a link provided here, you do so at your own risk and indemnify SageVest from any loss or damage incurred.

Make a wise investment in your future today.