Savings

to your wealth: Consider adding Series I savings bonds to your portfolio | Money

The interest rate on Series I Savings Bonds is specifically indexed to inflation so that the rate changes every six months based on the change in inflation for the previous six months. The rate resets in November and May each year. Currently, interest on Series I bonds is attractive at 7.12%. The rate changes twice a year so if you want to take advantage of this current rate, you must do so before the end of April. Based on the most recent inflation figures, we can expect a comparable rate for the next rate set in May.

Series I bonds can be used to help protect your savings against inflation, as a supplement to your retirement income, for gifts or as a way to help fund eligible educational expenses. Although interest earned is subject to federal income tax when refunded, it is not subject to state or local income tax. The bonds pay interest (at a rate that changes twice a year) for up to 30 years. You can redeem your Series I bonds after one year, but if you do so before five years, you lose the previous three months of interest. For example, if you cash in an I Bond after 18 months, you only get the first 15 months of interest.

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If you want to buy Series I paper bonds, you can do so through your federal tax refund. There is a maximum purchase limit of $5,000 per calendar year. Attach Form 8888 to your 2021 federal tax return to purchase Series I paper bonds. Adults can purchase paper bonds in the name of their child(ren).

Bonds can also be purchased electronically, up to $10,000 per calendar year. You will need to have or open a Treasury Direct account at savingsbonds.gov. Once done, you will be able to purchase and manage all of your bond purchases from this account. The site also provides lots of useful information on how interest rates are calculated, limits, tax issues, gift options, and more.

While children under 18 cannot open an account or purchase bonds through Treasury Direct, a parent or custodial adult can open an account linked to the adult’s account and transact on behalf of the child. . Other adults, such as grandparents, can also purchase savings bonds for the child as a gift once the account is opened.

Fair warning, the customer service experience with Treasury Direct isn’t great. If your account is locked for any reason, you can expect extremely long wait times for assistance which is only available over the phone. Be careful when selecting your “secret” questions and be sure to keep track of these answers with your login credentials and enter them correctly when prompted.

We offer readers a free guide to help you open and manage your Treasury Direct account. To visit https://toyourwealth.com/savings-bonds/ to request your copy.

Michael Haubrich is the founder and paid financial planner of Financial Service Group Inc., an investment advisory firm registered at 4812 Northwestern Ave., online at www.ToYourWealth.com.