I bonds are U.S. savings bonds designed to protect the value of your cash from inflation. And with inflation surging to 40-year highs, investors are especially interested in higher-returning, lower-risk investments.
But before making a decision to rush out and buy I bonds, make sure you understand the pros and cons first. This is critically important given that most will instinctively leap to own a security that pays out an annual rate of over 9% – but like any investment – know what you're buying before you buy.
A Series I savings bond is a security that earns interest based on a fixed rate and a rate set twice a year based on inflation. The bond earns interest until it reaches 30 years, or you cash it, whichever comes first.
For the first six months you own it, the Series I bond purchased from May 2022 through October 2022 earns interest at an annual rate of 9.62 percent. A new rate will be set every six months based on this bond's fixed-rate (0.00 percent) and inflation.
Individuals: Yes, if you have a Social Security Number and meet any one of these three conditions:
You must establish a TreasuryDirect account to buy and own an electronic I bond.
Yes, if they meet one of the conditions above for individuals.
Information concerning electronic and paper bonds:
In a calendar year, you can acquire:
Electronic bonds: You can buy them as gifts for any TreasuryDirect account holder, including children.
Paper bonds: You can request bonds in the names of others and then, once the bonds are mailed to you, give the bonds as gifts.
The purchase amount of a gift bond counts toward the annual limit of the recipient, not the giver. Per calendar year, you can buy up to $10,000 in electronic bonds and up to $5,000 in paper bonds for each person you buy for.
One essential detail to remember is that you need to hold your I bond for at least one year. And if you hold it for less than five years, you lose three months worth of earnings when cashing out.
Maybe the tax benefits and the protection against inflation are appealing to you. But like any investment, make sure I bonds fit well within your overall financial plan.