What is an I Bond?
An I bond is a savings bond backed by the U.S. government that's sole purpose is to protect the value of cash against inflation.
Where can you buy I Bonds?
You can only buy I Bonds directly from the U.S. treasury website(treasurydirect.gov).
Is there a limit to how much I can buy?
Each year $10,000 can be purchased per person.
If you use your tax return, you can purchase an additional $5,000.
$10,000 can also be purchased per child in a custodial account.
What is the interest rate on I bonds?
The interest rate consists of two parts: A fixed rate that is set at purchase price, and an inflation rate.
The inflation rate is linked to the current CPI.
The inflation rate is updated every 6 months.
Interest is added to the bond every month, and paid out when it is cashed out or matures.
The combined rate can not be less than 0%.
Can I sell my bonds when I want?
Bonds can be sold after 12 months.
If sold before 5 years, 3 months of interest is forfeited. If held longer than 5 years, no interest is forfeited.
How are taxes paid?
Federal taxes are owed on the interest paid out. State taxes are not owed.
If used for education interest can be tax free.
When should I Bonds be used?
Should be used in a high inflation environment.
Can be a good alternative for excess cash beyond your emergency and savings account.
Important to know that you will not have access to the funds invested for 12 months. Should only be used with funds you do not need access to for a few years.
Key Takeaways:
Only $10,000 can be invested per year per person.
Serve as a great hedge against inflation. Current interest rate is over 9%.
Can not be sold for at least 12 months. You will forfeit 3 months interest if sold before 5 years.
Federal taxes are collected, but no state taxes are collected.
Convexity Investments LLC | Naperville, IL | www.convexityinvest.com
Convexity Investments LLC is a registered investment advisory firm. Information presented herein is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Past performance is not a guarantee of future performance.
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