I bonds are back: Why the new 5.51% rate is so attractive
Series I savings bond acquisitions have become more appealing this month for two primary reasons.
First, the Treasury Department announced on Friday that the annualized yield for new I bond <a s life and is added to the variable inflation rate, which is adjusted every six months based on current economic data.
The composite or retirement savings must keep pace with inflation—which is currently hovering around 3.7% and has climbed in six of the last eight months—Series I bonds are designed to serve that exact purpose.
“For those interested in I bonds for the long term, the fixed rate is much more important than the variable inflation rate, which changes every six months,” Ken Tumin, co-founder of DepositQuest.com, a blog that tracks I bond rates, among other deposit accounts, told Yahoo Finance.
“The fixed rate remains with the I bond until it’s redeemed or until it reaches its 30-year maturity. It ensures that the I bond value will grow above inflation.”
Investing in I bonds
You can purchase I bonds in increments of $25 or more through the US Treasury’s website, TreasuryDirect, without incurring any fees. Paper bonds are available in five specific denominations: $50, $100, $200, $500, and $1,000.
While there is typically a $10,000 annual limit on I bond purchases per calendar year, there are ways to increase that total. For example, you may direct your federal tax refund toward the purchase of an additional $5,000 in I bonds.
Interest earned is generally exempt from state and local taxes. Furthermore, if you meet specific requirements, you may be able to exclude the interest from federal income tax if the funds are used to cover qualified higher education expenses during the same calendar year the bonds are redeemed.
