Soaring inflation is causing consternation among consumers, but savers may find a silver lining in Series I savings bonds.
I bonds issued from November 2021 to April 2022 yield an ongoing composite rate of 7.12%, compared to an average yield of 0.06% for bank savings accounts, according to Bankrate.
The I bond rate is made up of two parts: a fixed rate that stays the same for the life of the bond and an inflation rate that adjusts every six months.
Each May and November, the Treasury Department’s Office of the Tax Service announces a new fixed rate and a new inflation rate.
The fixed rate of bonds issued during this period is 0%, so the yield will be less impressive when inflation cools.
There are limits on the amount of I Bonds you can buy. The maximum you can buy in Electronic I Bonds via treasurydirect.gov is $10,000 per calendar year.
You can buy an additional $5,000 in paper bonds if you buy them with your tax refund, up to a maximum of $15,000.
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To obtain paper bonds, attach Form 8888 to your tax return. On the form, you can direct the IRS to issue some or all of your refund in I bonds. The IRS will mail the bonds to you.
You cannot cash in an I Bond until you have had it for at least 12 months. If you redeem it before five years have passed, you lose the previous three months of interest.
Interest you earn on an I bond is not subject to state or local income tax, and you can defer federal tax until you redeem the bond or it reaches its maturity after 30 years, at which time it ceases to generate interest.
A savings voucher is also a gift that keeps on giving. If you want to buy e-Bonds for someone else, you can buy them through your TreasuryDirect account and transfer them to the recipient’s account.
You must provide the recipient’s social security number, and the recipient must have their own TreasuryDirect account.
If you want to direct obligations to someone under 18, the child must have a custody account linked to their parent or guardian’s account. A paper bond purchased with your tax refund can also be given as a gift. On Form 8888, provide the recipient’s name. The IRS will send you the bond. To treasurydirect.gov/indiv/planning/plan_gifts_certificates.htmyou can select a gift certificate to fill out, print and include when the voucher is delivered.
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