Investing in an I Bond
By Hightower Great Lakes on October 10, 2022
What is an I Bond?
A Series I Savings Bond, or I Bond, is a savings bond backed by the United States government and is designed to protect your cash from inflation.
I Bonds earn a combined fixed interest rate that stays the same for the life of the bond as well as a variable inflation rate that is set twice a year to keep pace with inflation.
Where to Buy I Bonds & Limits on Purchasing:
- Up to $10,000 direct through the U.S. Treasury website treasurydirect.gov.
- Up to $5,000 of paper bonds through your tax return.
- Amounts above are per person per calendar year basis.
- I Bonds can be purchased for children.
- Cannot be purchased or held in a brokerage account.
- I Bonds can be purchased by businesses.
Yield & Interest Rate Calculation
- Determined every 6 months and compounded annually.
- Fixed Rate is set at purchase for entirety of the bond.
- Variable Rate is set based on inflation using the CPI – U including all items.
- The composite rate is a calculation based on the fixed and variable rates and can never be less than zero.
- The current composite rate is 9.62% for May – October 2022.
How I Bonds Are Taxed:
- Federally taxable but exempt from state & local tax.
- Interest can be reported annually or deferred until redemption or change of ownership.
- Tax free if used for education (must qualify).
Additional Considerations & Use Cases:
- Alternative investment vehicle to hold excess cash above emergency fund or short-term cash reserves.
- Goals with a time frame greater than 1 year (due to lack of liquidity). Funds will not be subject to market volatility.
- I Bonds fall into a cash/fixed income allocation when looking at your portfolio.
- Overall return is limited due to the $10,000 limit – you have to choose if it is worth the effort of investing.
Contact your Hightower Great Lakes advisor to see how this may fit in with your plans. For more information about I Bonds, visit the U.S. Treasury website.
Hightower Great Lakes is a group of investment professionals registered with Hightower Securities, LLC, member FINRA and SIPC,
and with Hightower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities, LLC; advisory services are offered through Hightower Advisors, LLC.
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