Looking For a Longer-Term Savings Plan?

April 6, 2022

Series I Bonds Could Be The Right Choice

A savings or money market deposit account is best for quick cash, but I Bonds can fit into a longer-term savings plan.

With interest rates on most savings accounts and certificates of deposit paying under 1%, the 7.12% composite rate on newly issued Series I savings bonds is hard to ignore. The composite rate consists of a fixed rate, which is currently 0% on new bonds, and an inflation rate, which is based on the government’s consumer price index and adjusts every six months from the bond’s issue date.

You can’t redeem an I bond within the first year. If you cash it in before five years have passed, the penalty is three months’ worth of interest—considerably less severe than the early-withdrawal penalties on most five-year CDs. Even if you pay the penalty, you still are likely to be far ahead of where you would be if you just earned the standard interest rate on your bank savings account. A savings account or money market deposit account is the best choice for money you may need to access immediately, such as an emergency fund, but I Bonds can fit well into a longer-term savings stash.

Each year, you can purchase up to $10,000 in electronic I Bonds at treasurydirect.gov, plus up to $5,000 in paper bonds with your federal tax refund. You don’t pay state or local income tax on the interest, and you can defer federal income tax until you redeem the Bond or it reaches maturity after 30 years.

Use I bonds to:

The Q and A on I Bonds:

  1. Is it taxable?
    A. Federal income tax: Yes
    State and local income tax: No
  1. Minimum purchase.
    A. Electronic: $25
    Paper: $50

Q.    Can I buy savings bonds for others using this tax refund method?

  1. Yes. You can request paper bonds in the names of others, making it possible to give the bonds as gifts. They will be mailed to you at the address on file with the IRS.

For additional information on I Bonds click here.