NEWS: The initial interest rate on new Series I savings bonds is the second-highest ever: 7.12 percent. You can buy I bonds at that rate through April 2022.
Quick & Easy Rules to withdrawing:
Can't withdraw for 1 year
Between 1 year and 5 years, withdrawing loses the last three months of interest
5+ years - no penalty
Also the interest that your savings bonds earn is subject to federal income tax, but not to state or local income tax. Reported on 1099-INT. The interest rates on the bonds are based on a fixed rate + an inflation rate. The latter changes every 6 months.
This could provide a useful risk-free vehicle if you've some cash that you want to protect from inflation but don't want to deploy anywhere else. Maybe can also be used to cover some sequence of returns risk.
The bummer is that a married couple is limited to purchasing $25k per year (10k per individual + 5k via tax return refund).
Still a good move for most, if one has the funds laying around, you could fund $45k MFJ pretty quickly by buying now and in January, and then at tax time. For most people on an ERE budget, that would alone represent a decent chunk of their nest egg.
This is correct, although one advantage of I Bonds is that the fixed rate can never go negative, unlike TIPS.
The overall payment can also never go negative, if your fixed portion is nonzero.
TIPS never have a negative coupon, although they can trade enough over par that the effective nominal interest rate is negative, as is the case currently.
I-bonds currently have a nice return and I think it unlikely that bank accounts will be matching that APY for a while.
The bummer is that a married couple is limited to purchasing $25k per year (10k per individual + 5k via tax return refund).
We will definitely be maxing this out next year…already did so this year. How does the $5k tax refund work? I thought it was a straight $10k max per person. Additional for MFJ?
We cashed some I bonds (and EE bonds) in Aug to help pay for our daughters tuition…many of those were from mid 90s with high rates.
Fun fact: the interest earned on them is tax free if used to pay for college tuition! That was reason for our cashing some out early.
We will definitely be maxing this out next year…already did so this year. How does the $5k tax refund work? I thought it was a straight $10k max per person.
The limit for direct purchase (electronic) is $10k per person. But you can also elect to receive your federal tax refund in the form of paper I Bonds. It's a max of $5k, and is separate from any bonds your purchased electronically. To get the max, you'll need to have a refund due of at least that amount. You can force a refund by making a large estimated tax payment during the tax year.