Where is a good place to invest part of your emergency fund that you won’t need to access for a year? (May 2022)
The answer is Treasury Direct online Series I savings bonds.
The initial interest rate on new Series I savings bonds is 9.62 percent.
You can buy I bonds at that rate through October 2022.
That rate is applied to the 6 months after the purchase is made. For example, if you buy an I bond on July 1, 2022, the 9.62% would be applied through January 1, 2023. Interest is compounded semi-annually.
The interest rate can't go below zero and the redemption value of your I bonds can't decline.
You can only purchase up to $10,000 per year per person online at Treasury Direct.
In addition, if you have a trust, you can buy another $10,000 per year under the name of the trust.
And, if you own a business, your business can buy up to $10,000 per year under the name of the business. If you own multiple business entities, each separate business entity can buy up to $10,000 per calendar year in its own separate account. Because you’re using the business’s cash to buy I Bonds, it doesn’t matter how much revenue the business has in a year as long as the business has that much cash in its bank account.
Understand the holding period is at least 1 year.
If redeemed before 5 years then there is a 3 month interest penalty.
I bonds are state income tax free.
You have a choice when you must report the interest on your tax form. You can:
- report the interest every year
- put off (defer) reporting the interest until you file a federal income tax return for the year in which the first of these events occurs:
- you cash the bond and receive what the bond is worth, including the interest, or
- you give up ownership of the bond and the bond is reissued, or
- the bond stops earning interest because it has reached final maturity.
If you have any questions please feel free to contact Larry Koeppel via email at email@example.com.
Resources: Series I Bonds
Tax Considerations for I Bonds
Want to buy more than $10,000 in nearly risk-free I bonds? Here are a few strategies