Series I Bonds
Updated: Dec 21, 2022
By Conor O’Driscoll, Investment Analyst
You may have seen a type of bond on the news called Series I Bonds. This has been a commonly asked topic as clients look for ways to store cash and keep up with inflation. These are government issued bonds that accumulate interest based on CPI (consumer price index) inflation. As we have seen in recent headlines, inflation has been higher than previously expected. More information on these bonds can be found at www.treasurydirect.gov.
The interest on these particular bonds is calculated based on CPI inflation from the 6 months prior and resets every 6 months. As the rate of inflation changes, so does the additional interest accumulated on these bonds. If future 6-month readings were to come in at 0, the interest would reset to zero. The interest can never go below zero.
Only $10,000 can be purchased online each year. However, you can also buy an additional $5,000 if you apply to the IRS to receive your tax refund in the form of Series I Bonds. Another avenue to consider is that you can buy Series I bonds for another (including children) as a gift. The gifted amount then applies to the $10,000 limit of the receiver of the bonds and not the person giving.
Once purchased, the bonds must be held for at least 12 months before they are sold. They can be held for a maximum of 30 years. Additionally, if the bonds are sold before 5 years, the previous 3 months of interest are forfeit. For example, if you sell after 12 months, you will receive only the first 9 months of interest.
The interest on I Bonds is subject to federal income tax but not state and local income tax. You also have the choice to report interest every year or defer reporting until the bond is cashed out. -----
Wells Fargo Advisors Financial Network is not a legal or tax advisor. This information is made available with the understanding that Wells Fargo Advisors and its affiliates are not engaged in rendering legal, accounting or tax advice. Be sure to consult your own tax advisor and investment professional before taking any action that may involve tax consequences. Tax laws or regulations are subject to change at any time and can have a substantial impact on your individual situation. Any discussion of taxes represents general information and is not intended to be, nor should it be construed to be, legal or tax advice. Tax laws or regulations are subject to change at any time and can have a substantial impact on an actual client situation. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list.