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Understanding the In's and Out's of Series I Bonds

Understanding the In's and Out's of Series I Bonds

| October 28, 2022

Series I Bonds have been in the headlines more than usual due to the recent rate hikes conducted by the Federal Reserve.  Per the Treasury Direct website Series I Savings Bonds that were issued May 1, 2022 to October 31, 2022 offer 9.62% interest rate.  This sounds wonderful considering the low-interest rate environment we’ve been accustom to the past decade.  Before  you go flocking toward this financial vehicle here are some facts that you should be aware prior to making any decisions.

How Does a Series I Bond Earn Interest?

In simple terms the Series I Bonds earn interest on a monthly basis.  Pretty straight forward right?  Interest is compounded semiannually, so every 6-months that the Series I Bond is held the bond’s interest rate is applied to a new principal value.  The new principal is the total of the prior principal and the interest earned in the previous 6-months. 

How Long Does a Series I Bond Earn Interest?

Series I Bonds can earn interest for as long as you allow them to up to a maximum of 30-years.  You do have the option of cashing in the I bond whenever you want, however if you cash in earlier than 12-months you’ll not receive any interest.  Series I bonds that are redeemed in less than 5-years will lose out on the last 3-months of interest. How does that work specifically?

Example: If a Series I Bond owner cashed in their bond after 18-months of owning it they would only receive 15-months of interest. 

When Do I Get the Interest on My Series I Bond and is it Taxable?

As a Series I Bond owner you don’t technically receive your total interest earned until after the bond is redeemed.  There is a different process for electronic I Bonds vs. paper I Bonds.  For electronic I Bonds the interest is paid when the bond matures (unless cashed in before then).  Paper I Bonds have a more involved process where the bond owner must submit the paper bond in order to cash out.  For more information on how to cash in a paper I Bond check out the Treasury Direct website here.

In simple terms interest earned on Series I Bonds is taxable at the federal level but not at the state and local income tax level.  As a bond owner you can choose whether to report each year’s earnings or wait to report all the earnings when you get the money for the bond.  If you plan on using the money for qualified higher education expenses, there may be some tax-advantages.  We recommend consulting with your tax professional or CPA when making tax decisions.   For more information regarding the taxability of interest earned on Series I Bonds please visit the Treasury Direct website here.

How Much Does a Series I Bond Cost and What is the Maximum Purchase Amount?

There are different value limits and purchase prices for electronic I Bonds vs paper I Bonds.  Electronic I Bonds can be purchased with as little as $25 or any amount above that to the penny, for example an investor could purchase $32.87 worth of an electronic I Bond.  Paper I Bonds on the other hand can only be purchased in increments of $50, $100, $200, $500, or $1,000. 

There are set maximums for how much in Series I Bonds an individual can purchase in any given calendar year.  This is tracked through the use of a single social security number of Employer Identification Number.  Again there are differing amounts based on whether you’re purchasing electronic or paper Series I Bonds. 

  • Up to $10,000 in electronic I Bonds, and
  • Up to $5,000 in paper I bonds (with your tax refund)


So What Did We Learn?

Series I Bonds are offering a great interest rate in the current bear market that we’re experiencing as investors.  It isn’t as simple as allocating your funds toward an I Bond an immediately receiving the current quoted 9.62% (as of 10/11/2022).  As a bond owner it’s recommended that you own the bond for more than 12-months, but if you want to receive 100% of your potential earned interest you’ll want to leave the Bond alone for a minimum of 5-years.  If you’re interested in adding Series I Bonds to your overall financial plan I recommend speaking with your financial advisor and or tax specialist to confirm the pros and cons before you dive in. Keep in mind that the Series I Bond interest rate is expected to drop down to 6.48% as of November 1st, 2022.  

If you have any personal questions or would like to schedule a complimentary review feel to free to book a meeting here!



Financial Advisor and Registered Representative of Park Avenue Securities LLC (PAS). OSJ: 6115 Park South Drive, Suite 200, Charlotte, NC 28210. Securities products and advisory services offered through PAS, member FINRA, SIPC.  Financial Representative of The Guardian Life Insurance Company of America®(Guardian), New York, NY. Park Avenue Securities is a wholly owned subsidiary of Guardian. Consolidated Planning, Inc. is not an affiliate or subsidiary of PAS or Guardian. CA insurance license # 0M50974. Guardian and PAS do not offer student loans to finance education nor do they offer legal to tax advice.  2022-145348 Exp. 10/23. 

Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice.  Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary.  Therefore, the information should be relied upon only when coordinated with individual professional advice.

Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit and inflation risk.

Links to external sites are provided for your convenience in locating related information and services.  Guardian, its subsidiaries, agents and employees expressly disclaim any responsibility for and do not maintain, control, recommend, or endorse third-party sites, organizations, products, or services and make no representation as to the completeness, suitability, or quality thereof.