Is It Time To Consider I Bonds

I was reminiscing the other day about the gifts that my grandmother used to give me for my birthday and at holiday time.    She wasn’t a great gift giver, especially when I would get a sweater vest with the big letter “T” etched right in the middle of the sweater. Oh yeah, I also got socks a few years which is a swell gift if you want to end up on the loser list at middle or high school.   But, the one gift that didn’t mean much to me at the time and paid dividends later were the series EE savings bonds that I stuck in an envelope and let sit in my drawer until they matured.   Those very bonds helped me be able to put a down payment on my first car so I can thank my grandmother for that.

With interest rates hovering at an all time low over the past seven or eight years, hardly anybody talks about buying bonds from the Government because they just flat out don’t pay any money.   However, as inflation and interest rates rise, one consideration you might want to investigate is something called The I-Bond which can be found on www.treasurydirect.gov .

What Is A Series I Bond? (source: Investopedia)

A Series I-Bonds is a non-marketable, interest-bearing U.S. government savings bond that earns a combined:
1) fixed interest rate; and
2) variable inflation rate (adjusted semiannually).
Series I bonds are meant to give investors a return plus protection on their purchasing power. Additionally, the interest income is only taxable at the federal level, not at the state and local levels. Most Series I bonds are issued electronically, but it is possible to purchase paper certificates with a minimum of $50 using your income tax refund.

The two types of interest that a Series I bond earns are 1) an interest rate that is fixed for the life of the bond; and 2) another rate that is adjusted each May and November based on changes in the nonseasonally adjusted consumer price index for all urban consumers (CPI-U). Series I bond interest is compounded every six months.

So, what am I committing to if I buy an I-Bond? (source:TreasuryDirect.gov)

As of 4/24/2017

Current Rate:2.76% through April 30, 2017
Minimum purchase:$50 for a $50 I bond when purchasing paper bonds with your IRS tax refund

$25 for a $25 I bond when purchased electronically via TreasuryDirect

Maximum purchase

(per calendar year):

$10,000 in TreasuryDirect and $5,000 in paper bonds purchased with IRS tax refunds
Denominations:Paper bonds with your tax refund: $50, $100, $200, $500, $1,000

Electronic bonds via TreasuryDirect: purchase to the penny for $25 or more

Issue Method:Paper bonds with your tax refund or electronic issue in TreasuryDirect accounts

 

Rates & Terms

  • I bonds have an annual interest rate derived from a fixed rate and a semiannual inflation rate.
  • Interest, if any, is added to the bond monthly and is paid when you cash the bond.
  • I bonds are sold at face value; i.e., you pay $50 for a $50 bond.

Redemption Information

  • Minimum term of ownership: 1 year
  • Interest-earning period: 30 years
  • Early redemption penalties:
    • Before 5 years, forfeit 3 most recent months’ interest
    • After 5 years, no penalty

Tax Considerations

  • Savings bonds are exempt from taxation by any State or political subdivision of a State, except for estate or inheritance taxes.
  • Interest earnings are subject to Federal income tax.
  • Interest earnings may be excluded from Federal income tax when used to finance education (see education tax exclusions).

If you go back to your childhood, most of you will recall those bonds that sat in an envelope right next to your socks in your drawer.   With the current environment and the Fed suggesting that rates may go up twice more here in 2017, this just might be a great time to put the “I” in your overall strategy.

 

About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin @ Your Smart Money Moves

Hey!

My friends and family all think I’m a workaholic, but I say I’m just a guy that loves to help people do better in life.

My mother is still the only one that calls me by my real name Theodore Michael, my wife calls me Teddy, but for the rest of you it is just plain old Ted.

Ever since I was a little kid, I always loved money and being an entrepreneur. In fact, I still have cassette tapes of me talking to my grandmother at the age of five and my mother tells me all the time how much I played with money as a kid...

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Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

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