The United States Treasury offers a variety of different bonds for individuals to purchase. All bonds issued by the Treasury are considered to be a very low risk investment, as they are guaranteed by the federal government.
Series I bonds are one of the most popular choices in government bonds, and they offer a steady interest rate over the life of the bond.
What is an I Bond?
An I bond is a bond offering purchased at face value. A$50 bond is purchased for $50, and interest accrues on the amount for up to 30 years. The interest rate on the bond is calculated from a fixed rate, combined with an adjustment for inflation.
The minimum length of ownership is one year, although penalties are incurred if the bond is redeemed within the first five years of ownership.
Federal income tax is assessed on the interest earned from the bond, but only when the bond is cashed in.
I savings bonds are available as traditional paper securities or as an electronic bond, but currently most bonds issued are electronic.
Paper bonds can only be purchased when an individual files their federal income taxes and is due a tax refund from the IRS.
How to Buy an I Bond
When a refund is due, a tax payer can opt to have part or all of their IRS refund, up to $5,000, paid to them via paper bonds. Aside from tax time, all other federal bonds issued in the United States are electronic securities.
An account with the US Treasury’s website, Treasury Direct, is required to purchase electronic securities. Once a user registers and confirms their account, they can link a checking or savings account to fund their bond purchases.
After the Treasury Direct account is set up and the funding source is confirmed, it takes about 30 seconds to purchase a bond online.
Buying bonds through the Treasury Direct system is very simple. Once logged in to their account, a user simply chooses the type of bond or security they would like to purchase, enters the desired value and selects which account to use to fund the transaction.
The online system tracks all purchases, including current values with the accrued interest and maturation dates.
I bonds are available online in any denomination from $25 to $10,000, while paper bonds are issued in standard denominations between $25 and $5,000. Up to $10,000 of bonds can be purchased online in one year, in addition to the $5,000 allowed through the IRS tax refund program.
I savings bonds are ideal for a variety of savings needs, including saving for college, as the interest earned on the bond is tax free if it is used to finance education.
Whether saving for a house, college or retirement, savings bonds can be a vital part of a financial plan. In an unstable and changing economy, buying bonds is a safe and reliable investment for the future.