Guidelines for Purchasing iBonds

Investing in bonds is a popular way to diversify one’s investment portfolio and generate a steady stream of income. iBonds, also known as inflation-protected savings bonds, are a specific type of bond that provide protection against inflation. If you are considering purchasing iBonds, here are some important guidelines to keep in mind.

1. Understand what iBonds are: iBonds are savings bonds issued by the U.S. Department of the Treasury. They offer protection against inflation by adjusting their interest rate to keep up with changes in the consumer price index (CPI). This means that the value of your investment will always keep pace with inflation.

2. Determine your investment objectives: Before purchasing iBonds, it is crucial to determine your investment objectives. Are you looking for a safe and low-risk investment? Do you want to protect your purchasing power against inflation? Understanding your goals will help you make informed decisions throughout the investment process.

3. Research the current interest rate: The interest rate on iBonds changes twice a year, in May and November. By researching the current interest rate, you can have a better understanding of the potential return on your investment. The interest rate is composed of both a fixed rate and an inflation rate, which can vary depending on market conditions.

4. Consider the purchase limits: There are certain limits on how many iBonds you can purchase in a calendar year. As of 2021, the limit is set at $10,000 per Social Security Number (SSN) through online purchases via TreasuryDirect. It’s important to note that this limit applies to each type of bond separately – Series I Bonds and Series EE Bonds.

5. Decide between paper and electronic bonds: iBonds are available in both paper and electronic form. While paper bonds are still an option, electronic bonds offer greater convenience and flexibility. With electronic bonds, you can manage your investments online, receive interest payments directly into your bank account, and easily track the performance of your bonds.

6. Understand the tax implications: Interest earned from iBonds is subject to federal income tax but is exempt from state and local taxes. However, it is important to consult a tax professional to fully understand the tax implications of iBonds and how they fit into your overall tax strategy.

7. Consider the investment term: iBonds have a minimum holding period of one year, and redeeming them before five years will result in the forfeiture of the three most recent months of interest. Therefore, iBonds are suitable for investors with a medium to long-term investment horizon.

8. Stay informed: As with any investment, it is important to stay informed about market conditions and changes in regulations or policies that may impact iBonds. The U.S. Department of the Treasury provides regular updates and information on iBonds that can help you make well-informed decisions.

In conclusion, iBonds are a valuable investment option for those seeking protection against inflation. By understanding the guidelines mentioned above, you can make an informed decision when purchasing iBonds. Remember to conduct thorough research, evaluate your investment objectives, and stay aware of any changes that may affect your investment.