EE and I bonds earn interest until the first of these events: You cash in the bond or the bond matures – reaches the end of its 30-year term.
Question: What are some tax advantages of the Series I bond? until redemption, final maturity (30 years after issue date), or other taxable disposition, whichever occurs first. Question: How long will my Series I bond earn interest? Answer: I bonds earn interest for up to 30 years.
The composite rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the 30-year life of the bond, and the semiannual inflation rate.
Savings bonds mature at different times, depending on the series. Series I savings bonds, commonly referred to as "I Bonds," fully mature after 30 years. However, you can redeem them as early as one year after purchase.
The interest rate on EE bonds is fixed for the life of the bond while I bonds offer rates that are adjusted to protect from inflation. EE bonds offer a guaranteed return that doubles your investment if held for 20 years. There is no guaranteed return with I bonds.
I Bond Cons
The initial rate is only guaranteed for the first six months of ownership. After that, the rate can fall, even to zero. One-year lockup. You can't get your money back at all the first year, so you shouldn't invest any funds you'll absolutely need anytime soon.
Normally, you're limited to purchasing $10,000 per person on electronic Series I bonds per year. However, the government allows those with a federal tax refund to invest up to $5,000 of that refund into paper I bonds. So most investors think their annual investment tops out at $15,000.
How long will the money be locked in if you purchase an I bond? I bonds earn interest for 30 years, as long as you don't cash them in before then. You need to hold them for at least one year, and if you redeem them after less than five years, you forfeit the previous three months of interest.
It has been a long time coming, but 2023 looks to be the year that bonds will be back in fashion with investors. After years of low yields followed by a brutal drop in prices during 2022, returns in the fixed income markets appear poised to rebound.
However, you only get that interest when you cash them in or they finish their 30-year life (they mature). (The interest your bonds earn gets added to the principal every 6 months, so the next interest the bond earns is based on the higher principal [old principal plus interest earned].)
The biggest red flag for short-term investors: You can't redeem these bonds for a year after you purchase them, and you'll owe a penalty equal to three months' interest if you cash out any time over the first five years of owning the bond.
You can cash in (redeem) your I bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest.
No, I Bonds can't lose value. The interest rate cannot go below zero and the redemption value of your I bonds can't decline.
Interest accrues monthly and is compounded semiannually. SERIES I BONDS ISSUED SEPTEMBER 1998 AND THEREAFTER All Series I bonds reach final maturity 30 years from issue. Series I savings bonds earn interest through application of a composite rate.
Generally speaking, if you want to earn more interest, you'll need to take on more risk — and for many retirees, that's not a good option, either. You can safely earn far more with I Bonds, a type of savings bond issued by the U.S. Treasury, and protect against future high inflation.
Series I bonds are sold at face value and mature after 30 years. Interest is added monthly to the bond's value. Series HH bonds mature in 20 years. Bondholders receive monthly interest payments until they sell the bond or it reaches its maturity.
I bonds can be a safe immediate-term savings vehicle, especially in inflationary times. I bonds offer benefits such as the security of being backed by the full faith and credit of the U.S. government, state and local tax-exemptions and federal tax exemptions when used to fund educational expenses.
Inflation sucks, but there is one upside: It's still a great time to buy a government-backed I bond. Series I savings bonds are conservative, safe investments that rise and fall with inflation, and they're earning far more than the best high-yield savings account or certificate of deposit.
When we compare the historical 6-month composite rates against 12-month Treasuries at the time we see that the 6-month I bond rate is an average of 0.31% lower. At an initial rate of 6.89%, buying an I bond in October gets roughly 2.1% more compared to the 4.76% 12-month treasury rate (December 13, 2022).
I bonds protect you from inflation because when inflation increases, the combined rate increases. Because inflation can go up or down, we can have deflation (the opposite of inflation). Deflation can bring the combined rate down below the fixed rate (as long as the fixed rate itself is not zero).
2022 Annual Purchase Limits
As of October 2022, each individual entity can purchase up to $10,000 worth of Series I bonds in a year. All bonds must be registered electronically through TreasuryDirect.
Note: The three purchase limits above apply separately. That is, in a single calendar year you could buy $10,000 in electronic Series EE bonds, $10,000 in electronic Series I bonds, and $5,000 in paper Series I bonds.
$10,000 limit: Up to $10,000 of I bonds can be purchased, per person (or entity), per year. A married couple can each purchase $10,000 per year ($20,000 per year total).
Series I bonds do offer some tax advantages, too. Interest on the bonds is exempt from state and local taxes, though you'll still have to pay federal taxes on the gains. And using the interest to pay for higher education may help you avoid paying federal taxes on the interest income, too.
Interest earned on I bonds is exempt from state and local taxation, but owners can also defer federal income tax on the accrued interest for up to 30 years.