Here's why it could be better to buy Series I bonds before May, experts say (2024)

FAQs

Here's why it could be better to buy Series I bonds before May, experts say? ›

Here's why it could be better to buy Series I bonds before May, experts say. The annual rate for newly purchased Series I bonds could fall below 5% in May, which is lower than the current 5.27% on new purchases through April 30.

I bonds can be a safe immediate-term savings vehicle, especially in inflationary times. I bonds offer benefits such as the security of being backed by the full faith and credit of the U.S. government, state and local tax-exemptions and federal tax exemptions when used to fund educational expenses.

While the Series I bond eliminates principal risk and inflation risk, investors must keep their money locked up for at least a year. You simply won't be able to sell the bond before then. So if there's any chance you'll need the money before a year, the Series I bond is not for you.

At an initial rate of 4.28%, buying an I bond today gets roughly 1% less compared to the 5.25% 12-month Treasury Bill rate (May 1, 2024). You could say that buying an I Bond right now is a 'fair deal' historically compared to 2021 & 2022 when I Bond rates were much higher than comparable interest rate products.

Key Points. Pros: I bonds come with a high interest rate during inflationary periods, they're low-risk, and they help protect against inflation. Cons: Rates are variable, there's a lockup period and early withdrawal penalty, and there's a limit to how much you can invest.

Answer: No. In periods of deflation, the bond's redemption value won't decline. Question: What are some tax advantages of the Series I bond? until redemption, final maturity (30 years after issue date), or other taxable disposition, whichever occurs first.

Yes, you can purchase up to $10,000 in electronic I bonds each calendar year. You can also buy an additional $5,000 in paper I bonds using your federal tax return.

Bottom line. If inflation and investment safety are your chief concerns — TIPS and I-bonds deliver both. TIPS offer greater liquidity and the higher yearly limit allows you to stash far more cash in TIPS than I-bonds. If you're saving for education, I-bonds may be the way to go.

Interest on I bonds is exempt from state and local taxes but taxed at the federal level at ordinary income-tax rates.

How long should you hold series I bonds? ›

Can I cash it in before 30 years? You can cash in (redeem) your I bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest. For example, if you cash in the bond after 18 months, you get the first 15 months of interest.

Should I only buy bonds when interest rates are high? There are advantages to purchasing bonds after interest rates have risen. Along with generating a larger income stream, such bonds may be subject to less interest rate risk, as there may be a reduced chance of rates moving significantly higher from current levels.

“With I bonds, your principal is protected and safe. However, if you cash the bond out before five years, then you will lose up to the last three months of accrued interest. So you can't lose what you put in, but you can lose earned interest,” Boxenbaum said.

There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall.

If you want to keep all your good interest and get the most out of your I Bonds you should cash out: after earning 3 months of lower interest and. just after the 1^st of the month.

Treasury Notes vs. Bonds

Both notes and bonds pay interest every six months and the face value is at maturity. Because of their longer maturities, Treasury bonds generally offer higher interest rates than Treasury notes to compensate investors for the additional risk of holding the securities for a longer period.

TIPS offer greater liquidity and the higher yearly limit allows you to stash far more cash in TIPS than I-bonds. If you're saving for education, I-bonds may be the way to go.

Interest on I bonds is exempt from state and local taxes but taxed at the federal level at ordinary income-tax rates.

Series I bonds will pay 4.28% annual interest from May 1 through October 2024, the U.S. Department of the Treasury announced Tuesday. Linked to inflation, the latest I bond rate is down from the 5.27% annual rate offered since November and slightly lower than the 4.3% from May 2023.