I bonds — TreasuryDirect (2024)

FAQs

Is there a downside to I bond? ›

The cons of investing in I-bonds

There's actually a limit on how much you can invest in I-bonds per year. The annual maximum in purchases is $10,000 worth of electronic I-bonds, although in some cases, you may be able to purchase an additional $5,000 worth of paper I-bonds using your tax refund.

I won't keep you in suspense. The U.S. Treasury announced that the new interest rate for I bonds will be 4.28% for new bonds issued from May 1 through the end of October 2024. This is a significant reduction from the 5.27% rate that has been in place from November 2023 through the end of April.

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.

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.

That said, there is a $10,000 limit each year for purchasing them. There are several ways around this limit, though, including using your tax refund, having your spouse purchase bonds as well and using a separate legal entity like a trust.

If inflation runs hotter, the rate can go up. If inflation cools off, the rate can go down. The fixed rate portion of an I Bond remains with the life of the bond. The fixed rate is 1.3% for I Bonds issued from November 2023 through April.

Interest accrues monthly and is compounded semiannually. SERIES I BONDS ISSUED SEPTEMBER 1998 AND THEREAFTER All Series I bonds reach final maturity 30 years from issue. Series I savings bonds earn interest through application of a composite rate.

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

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.

Can you cash out an I bond at any time? ›

You can get your cash for an EE or I savings bond any time after you have owned it for 1 year. However, the longer you hold the bond, the more it earns for you (for up to 30 years for an EE or I bond). Also, if you cash in the bond in less than 5 years, you lose the last 3 months of interest.

I bonds earn interest from the first day of the month you buy them. Twice a year, we add all the interest the bond earned in the previous 6 months to the main (principal) value of the bond. That gives the bond a new value (old value + interest earned).

Securities purchased through TreasuryDirect cannot be sold in the secondary market before they mature. This lack of liquidity could be a disadvantage for investors who may need to access their investment capital before the securities' maturity.

Another advantage is that TIPS make regular, semiannual interest payments, whereas I Bond investors only receive their accrued income when they sell. That makes TIPS preferable to I Bonds for those seeking current income.

Call risk is the likelihood that a bond's term will be cut short by the issuer if interest rates fall. Default risk is the chance that the issuer will be unable to meet its financial obligations. Inflation risk is the possibility that inflation will erode the value of a fixed-price bond issue.

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.