I bonds — TreasuryDirect (2024)

FAQs

What is the downside of buying I bonds? ›

Cons of Buying I Bonds

I bonds are meant for longer-term investors. If you don't hold on to your I bond for a full year, you will not receive any interest. You must create an account at TreasuryDirect to buy I bonds; they cannot be purchased through your custodian, online investment account, or local bank.

The catch is that there's a penalty for cashing in an I bond before five years from its issue date. Fortunately, the penalty is fairly mild. For all I bonds less than five years old, the penalty is equivalent to the last three months' worth of interest. As mentioned, your I bond rate changes every six months.

So are I bonds worth it? Whether I bonds make sense for you depends on your goals. If you only want to beat inflation, they'll ensure that you succeed. But if their $15,000 annual investment ceiling, withdrawal restrictions and interest rate uncertainty are turn offs, there are alternatives.

If you're saving for education, I-bonds may be the better choice. Interest earned from I-bonds may be excluded from federal income taxes if you use the money for qualified education expenses and don't exceed income limitations. However, TIPS and I-bonds offer two great ways to save safely for the future.

I bonds issued from May 1, 2024, to Oct. 31, 2024, have a composite rate of 4.28%. That includes a 1.30% fixed rate and a 1.48% inflation rate. Because the U.S. government backs I bonds, they're considered relatively safe investments.

Variable interest rates are a risk you can't discount when you buy an I bond, and it's not like you can just sell the bond when the rate falls. You're locked in for the first year, unable to sell at all.

There's no limit on how often you can buy I bonds. But there's a limit on how much a given Social Security number can purchase annually. Here are the annual limits: Up to $10,000 in electronic I bonds.

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. See Cash in (redeem) an EE or I savings bond.

The 4.28% composite rate for I bonds issued from May 2024 through October 2024 applies for the first six months after the issue date. The composite rate combines a 1.30% fixed rate of return with the 2.96% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).

If you sell a bond before you've held it for five years, you may lose the last three months' worth of interest. If you hold the bond for five years or more, you won't lose any interest. I bonds can earn interest for 30 years unless you cash them out before then.

What are the disadvantages of TreasuryDirect? ›

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.

Stocks offer the potential for higher returns than bonds but also come with higher risks. Bonds generally offer fairly reliable returns and are better suited for risk-averse investors.

More about savings bonds

The interest earned by purchasing and holding savings bonds is subject to federal tax at the time the bonds are redeemed. However, interest earned on savings bonds is not taxable at the state or local level.

For the near-term, T-bills are going to offer better yields than I Bonds. Short-term investors should favor T-bills if their investing horizon is 2 years or less.

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.

Investing in I bonds offers retirees significant tax advantages. The interest earned on I bonds is tax-deferred, meaning you don't have to pay taxes on the interest until you decide to redeem the bonds. This can be a valuable feature, allowing you to postpone tax liability and potentially lower your annual tax bill.

inflation rate can vary. You can count on a Series I bond to hold its value; that is, the bond's redemption value will not decline.