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Series I savings bonds - Safe Investment When Stock Market IS Volatile

  Sanjiv Gupta CPA  Published 
Series I savings bonds - Safe Investment When Stock Market IS Volatile

Series I savings bonds are a low-risk savings product offered by the U.S. Department of the Treasury to help consumers prepare for retirement. 

These electronic securities offer a fixed rate of interest and guarantee principal and final maturity value. They make a good complement to a retirement investment portfolio because they can provide both steady income and long-term growth. 

I-bonds are sold at face value, and the U.S. Treasury guarantees that both principal and interest will be paid back on or before maturity (30 years). The minimum purchase is $50 for electronic bonds; paper certificates no longer available . I-bonds can't be redeemed within 12 months of purchase.

Taxes are deferred on earnings, but the interest is subject to taxation when you cash in your bonds. 

Interest income is exempt from state and local taxes . 

The interest rate for Series I savings bonds is established every May 1 and November 1. The rate for a newly issued bond remains the same for the life of the bond. The rate is based on a combination of factors, including current interest rates and the inflation rate as measured by the consumer price index .

I-bonds are not marketable securities; you can't trade them in the secondary market, nor do they have cash value. Series I savings bonds do come with an option to defer taxes on savings bond interest income--a feature that can be attractive to some savers. 

When you cash in your bonds, the interest is reported on IRS Form 1099-INT, and a portion of it may be taxable depending on how long you owned the bonds. Interest earned over the first five years is taxed at your federal income tax rate. For example, if you buy a bond at face value for $50, that's your basis in the bond. After five years of holding the bond, all interest it earned is taxable income . 

You're responsible for figuring out how much of the interest is taxable and paying the resulting tax bill on your own. You don't have to wait for the IRS to send you a Form 1099-INT.

I-bonds and EE savings bonds are the only securities that the Federal Reserve Banks will cash at par value for current face value when they can't be redeemed at maturity. 

Using I-bonds as collateral: Series I savings bonds may also be pledged as collateral for loans of up to $100,000 from certain federal government loan programs, such as:

· Federal Perkins Loan Program 

· Direct Subsidized and Unsubsidized Stafford Loans 

· Supplemental Loans for Students (SLS) 

How do you buy ibonds?

New Series I savings bonds are only available through the Treasury Department's electronic secure website, TreasuryDirect . 

You can buy, manage and redeem Series I savings bonds in TreasuryDirect 24 hours a day, seven days a week. You can purchase paperless electronic savings bond for as little as $25 each.

You can purchase electronic Series I savings bonds online, at your local bank or credit union, or through the U.S. Treasury's mail-order system. 

If you want to buy paper certificates , however, you'll have to go directly to a local bank or credit union that sells them. Paper certificates are no longer available from  the Treasury Department.

You will need to have a Social Security number or Taxpayer Identification Number . You can open an account with as little as $25, if you do it online.