An I-Bond is a Government-Issued Bond: A Type of Savings Instrument

A government-issued bond that can be purchased directly from the Treasury's website, an I-Bond is essentially a type of savings instrument designed to track your cash alongside inflation. This means that the interest it earns is roughly in line with the rate of inflation. When inflation is low, the return on investment is also lower, but over the past few decades, inflation has been relatively steady, resulting in a predictable and stable return on investment.

The Inflation Rate: A Key Consideration

However, the inflation rate has changed recently. As of March 2022, the inflation rate reached its highest level since 1981 at 8.5%. This sudden spike in inflation means that the interest earned by I-Bonds may not keep pace with inflation, potentially eroding the value of your savings. In fact, if you simply leave money in a standard savings account earning zero percent interest, your savings would actually be losing value due to inflation. For example, saving a dollar last year would only be worth approximately 91 cents today.

Eligibility and How to Buy I-Bonds

To buy I-Bonds, you must meet one of three conditions: (1) you are a U.S. citizen living in the U.S. or abroad, (2) you are a U.S. resident, or (3) you are a civilian employee of the United States, regardless of where you live. To purchase I-Bonds online, you must set up a Treasury Direct account, which can be done by visiting treasurydirect.gov and following the instructions. This process involves creating an account owner profile, providing your taxpayer identification number (which is typically your Social Security number), and setting up your bank details.

Security and Verification

Once you've completed the initial setup, you'll review your account information and click "Submit" to confirm. You'll then receive an email with a one-time password, which you can use to log in to your account. After logging in, you can proceed to buy I-Bonds by clicking on the "Buy Direct" tab and selecting Series I under the Savings Bonds heading.

Buying I-Bonds: A Step-by-Step Guide

When buying I-Bonds online, you can spend anywhere between $25 and $10,000, with the maximum purchase limit being $10,000 per calendar year. You can also buy an additional $5,000 worth of paper I-Bonds through your tax return. To make a purchase, simply click "Submit" to review the details, then click "Submit" again to complete the transaction. It typically takes one business day for your purchase to show up in your account.

Returns on Investment: Compounding Interest

One of the key benefits of I-Bonds is their interest rate, which combines a fixed interest rate with a variable rate set by the Treasury every six months. As of April 2022, this combined rate was 7.1%, and it's expected to increase potentially reaching 9.6%. The good news is that the interest earns are compounded every six months, meaning the principal amount you purchased will grow over time.

Compound Interest and Its Benefits

The power of compound interest can be a game-changer when it comes to investing your money. In the case of I-Bonds, the interest earned in six months is added to the principal amount, creating a new principal value that grows over time. This effect is magnified as the years go by, making I-Bonds an attractive option for those who can keep them for at least one year before cashing them out.

Who Should Consider Buying I-Bonds?

I-Bonds can be a safe haven for cash that you may not need for the medium term. If you have spare money that you don't anticipate using in the next five years, an I-Bond might be a good option. However, if you need access to your funds sooner, they're not suitable. Additionally, while I-Bonds are exempt from state taxes, they are subject to federal taxes.

Conclusion

In conclusion, I-Bonds can be a valuable addition to your investment portfolio for those who have spare money that they don't anticipate using in the near future. With their combination of fixed and variable interest rates, compounded interest, and relatively low risk profile, I-Bonds make for a solid savings instrument. Just remember to keep them for at least one year before cashing them out, as this is the minimum term required to avoid penalties.

References:

- Treasurydirect.gov

- CNET Money

"WEBVTTKind: captionsLanguage: enibonds i'm gonna tell you what they are how you can buy them and why they can bring you way more returns than what you're getting at the bank if you've been listening to the news or buying literally anything in the past few months you've probably noticed prices are way up but there is a silver lining and it's called an eye bond now before we get into how i bonds work and how you can get in on the action a little bit of a disclaimer this isn't financial advice so make sure you do plenty of research based on your own situation before you commit your hard earned money that said the one thing that sets ibonds apart from other investments like cryptocurrency or speculating on the stock market is that they're backed by the us government so there's a lot more security and peace of mind so let's start with the basics what is an ibond well to get the low down i hit up cnet's resident money expert editor at large of cnet money farnoosh tarabi an ibond is a government issued bond you can buy it straight from the treasury's website it's basically a type of savings instrument that attempts to track your cash alongside inflation more or less it means that the interest it earns is roughly in line with the rate of inflation when inflation is low the return is also low and inflation has been low and pretty steady for the past few decades but over the past year or so inflation has been shooting up in march 2022 it hit 8.5 the highest it's been since 1981. if your money was just sitting in a standard savings account earning zero percent uh your savings would actually be losing value for example saving a dollar this time last year would actually be worth 91 cents today given the current rate of inflation you buy i bonds on the treasury direct website according to the treasury you can own an eye bond if you have a social security number and you meet one of three conditions one you're a u.s citizen either living in the u.s or abroad two you're a us resident or three you're a quote civilian employee of the united states no matter where you live you just need to set up a treasury direct account to buy them online to open your account head to treasurydirect treasurydirect.gov go to the individuals tab at the top and click on my accounts then click open an account and apply now choose individual then submit on the next page fill out the account owner information and taxpayer identification number which in this case is your social security number then fill out your bank details read the t's and c's and click submit next up review your info and click submit again to get to the security page you'll need to choose an image to personalize your account and set up your password and security questions after all that your account number is sent to your email address you log in with that which sends you another email this time with a one-time password which you can finally use to log in alright now you're on your treasury direct account to buy bonds go to the buy direct tab at the top of the screen then choose series i under the savings bonds heading now choose how much you want to buy and whether it's a single or repeat purchase you can spend anywhere between twenty five dollars to ten thousand dollars down to the nearest penny the max you can buy online in a calendar year is ten thousand dollars worth but you can also buy an extra five thousand dollars of paper i bonds through your tax return click submit to review the details of your purchase click submit again and you're done it should take one business day for your purchase to show up in your account so now the big question let's talk returns the interest on ibonds is a combination of a fixed interest rate which is set when you buy the bond and a variable interest rate that's set by the treasury every six months at the time of making this video in april 2022 that combined rate is 7.1 percent and the rate is expected to go up potentially hitting 9.6 that's a lot better than what you'll get from a standard savings account at the bank and the great news is the interest is compounded every six months so six months in the interest you earn is added to the principal amount that you purchased originally to create a new principal value that's the power of compound interest baby i bonds earn interest for up to 30 years but you need to keep them for at least one year before you cash them out and if you take them out before five years you'll lose the previous three months interest so as a real world example say you cash out after 18 months you'll only get the first 15 months worth of interest so who should be buying ibonds well here's fanuc from cnet money again i-bonds can be a safe haven for cash that you may not need for the medium term in my opinion for example you might need money for a home down payment in the next five years these are things that you foresee happening in the future but any money that you won't need for five years or more you may be able to afford more risk and might even make more money investing in the stock market so if you've got a bit of spare money that you don't need right away this could be perfect but remember you need to keep your ibons for at least a year so this isn't for cash that you might need in an emergency and importantly you still need to pay taxes but the good news is it's just federal tax so not state tax so that's everything you need to know about ibonds big thanks to my colleague farnoosh turabi from cnet money for helping us break this one down and remember if you want more practical tips like this fanuche has you covered be sure to subscribe to cnet money to find out how you can get your money working harder for youibonds i'm gonna tell you what they are how you can buy them and why they can bring you way more returns than what you're getting at the bank if you've been listening to the news or buying literally anything in the past few months you've probably noticed prices are way up but there is a silver lining and it's called an eye bond now before we get into how i bonds work and how you can get in on the action a little bit of a disclaimer this isn't financial advice so make sure you do plenty of research based on your own situation before you commit your hard earned money that said the one thing that sets ibonds apart from other investments like cryptocurrency or speculating on the stock market is that they're backed by the us government so there's a lot more security and peace of mind so let's start with the basics what is an ibond well to get the low down i hit up cnet's resident money expert editor at large of cnet money farnoosh tarabi an ibond is a government issued bond you can buy it straight from the treasury's website it's basically a type of savings instrument that attempts to track your cash alongside inflation more or less it means that the interest it earns is roughly in line with the rate of inflation when inflation is low the return is also low and inflation has been low and pretty steady for the past few decades but over the past year or so inflation has been shooting up in march 2022 it hit 8.5 the highest it's been since 1981. if your money was just sitting in a standard savings account earning zero percent uh your savings would actually be losing value for example saving a dollar this time last year would actually be worth 91 cents today given the current rate of inflation you buy i bonds on the treasury direct website according to the treasury you can own an eye bond if you have a social security number and you meet one of three conditions one you're a u.s citizen either living in the u.s or abroad two you're a us resident or three you're a quote civilian employee of the united states no matter where you live you just need to set up a treasury direct account to buy them online to open your account head to treasurydirect treasurydirect.gov go to the individuals tab at the top and click on my accounts then click open an account and apply now choose individual then submit on the next page fill out the account owner information and taxpayer identification number which in this case is your social security number then fill out your bank details read the t's and c's and click submit next up review your info and click submit again to get to the security page you'll need to choose an image to personalize your account and set up your password and security questions after all that your account number is sent to your email address you log in with that which sends you another email this time with a one-time password which you can finally use to log in alright now you're on your treasury direct account to buy bonds go to the buy direct tab at the top of the screen then choose series i under the savings bonds heading now choose how much you want to buy and whether it's a single or repeat purchase you can spend anywhere between twenty five dollars to ten thousand dollars down to the nearest penny the max you can buy online in a calendar year is ten thousand dollars worth but you can also buy an extra five thousand dollars of paper i bonds through your tax return click submit to review the details of your purchase click submit again and you're done it should take one business day for your purchase to show up in your account so now the big question let's talk returns the interest on ibonds is a combination of a fixed interest rate which is set when you buy the bond and a variable interest rate that's set by the treasury every six months at the time of making this video in april 2022 that combined rate is 7.1 percent and the rate is expected to go up potentially hitting 9.6 that's a lot better than what you'll get from a standard savings account at the bank and the great news is the interest is compounded every six months so six months in the interest you earn is added to the principal amount that you purchased originally to create a new principal value that's the power of compound interest baby i bonds earn interest for up to 30 years but you need to keep them for at least one year before you cash them out and if you take them out before five years you'll lose the previous three months interest so as a real world example say you cash out after 18 months you'll only get the first 15 months worth of interest so who should be buying ibonds well here's fanuc from cnet money again i-bonds can be a safe haven for cash that you may not need for the medium term in my opinion for example you might need money for a home down payment in the next five years these are things that you foresee happening in the future but any money that you won't need for five years or more you may be able to afford more risk and might even make more money investing in the stock market so if you've got a bit of spare money that you don't need right away this could be perfect but remember you need to keep your ibons for at least a year so this isn't for cash that you might need in an emergency and importantly you still need to pay taxes but the good news is it's just federal tax so not state tax so that's everything you need to know about ibonds big thanks to my colleague farnoosh turabi from cnet money for helping us break this one down and remember if you want more practical tips like this fanuche has you covered be sure to subscribe to cnet money to find out how you can get your money working harder for you\n"