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Invest in Savings Bonds

Invest in Savings Bonds
By Joseph O’Donnell
Pittsburgh Branch 201 Legislative Chair

In this challenging economic time, you may have noticed interest rates are not keeping up with inflation. Most CD interest rates currently are below 3%. Also, as a result of the volatile stock market, people may be reluctant to make investments for fear of losing their principle.

If you are looking for a way to protect your cash and receive a decent return on your investment, look into I bonds. Currently, these government bonds are paying 9.62% interest. I bonds with this interest rate can be purchased through October 2022. Interest is compounded semiannually.

The interest rate on an I bond is a combination of a fixed rate, which stays the same for the life of the bond, and an inflation rate, which is set twice a year. The inflation rate is the percent change in the Consumer Price Index for All Urban Consumers (CPI-U) over a six-month period ending before May 1 and November 1 of each year.

The CPI-U is a monthly measure of the average change over time in the prices paid by consumers for a market basket of consumer goods and services. The interest you earn is added to the value of your I bond twice a year (May and November). Income is taxable for federal income taxes, but not for state and local taxes.

I bonds may be purchased electronically or as paper bonds. However, paper bonds only may be purchased when filing your federal income tax return using your income tax refund. I bonds may be purchased electronically any time at treasurydirect.gov.

The minimum electronic purchase is $25; for paper bonds, the minimum is $50. The maximum electronic purchase is $10,000 annually; for paper bonds, the maximum is $5,000 annually. Bonds purchased electronically can be purchased in any denomination to the penny from $25 to $10,000. Paper bonds may be purchased in the following denominations: $50, $100, $200, $500 or $1,000.

I bonds earn interest for 30 years unless you cash them before that time. The bonds may be cashed after one year. However, if you cash them before five years, you lose the previous three months’ interest. So, if you cash an I bond after 18 months, you get the first 15 months of interest. If you cash the bond before a year, you will not receive any interest.

Purchasing I bonds electronically must be done online using your checking account. You will need your routing and checking account numbers.

I bonds may be purchased as an investment in a no-risk product that protects you against inflation, as a supplement to your retirement or as a gift for education or more. I bonds purchased for a child can be made only through a trust.

Please visit the government site, treasurydirect.gov, for information on investments in these bonds.