I bonds — TreasuryDirect (2024)

FAQs

What is the downside of buying I bonds? ›

Cons of Buying I Bonds

I bonds are meant for longer-term investors. If you don't hold on to your I bond for a full year, you will not receive any interest. You must create an account at TreasuryDirect to buy I bonds; they cannot be purchased through your custodian, online investment account, or local bank.

The 4.28% composite rate for I bonds issued from May 2024 through October 2024 applies for the first six months after the issue date. The composite rate combines a 1.30% fixed rate of return with the 2.96% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).

Securities purchased through TreasuryDirect cannot be sold in the secondary market before they mature. This lack of liquidity could be a disadvantage for investors who may need to access their investment capital before the securities' maturity.

Depending on the inflation rate, I-bonds can offer returns that are significantly higher than those of other low-risk investments like certificates of deposit (CDs) or high-yield savings accounts. I-bonds are also attractive because investors bear almost no risk of losing their principal.

For I bonds issued between May 1, 2024 and Oct. 31, 2024, the fixed interest rate is 1.3%. A second interest component is based on inflation rates, and it resets every six months. It most recently reset in May and is currently 2.96%, down from 3.94% last November.

Boxenbaum, chief financial planner and investment retirement advisor at Statewide Financial Group. “With I bonds, your principal is protected and safe. However, if you cash the bond out before five years, then you will lose up to the last three months of accrued interest.

Yes, you can purchase up to $10,000 in electronic I bonds each calendar year. You can also buy an additional $5,000 in paper I bonds using your federal tax return.

Can I cash it in before 30 years? 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. For example, if you cash in the bond after 18 months, you get the first 15 months of interest.

Bottom line. I bonds, with their inflation-adjusted return, safeguard the investor's purchasing power during periods of high inflation. On the other hand, EE Bonds offer predictable returns with a fixed-interest rate and a guaranteed doubling of value if held for 20 years.

Should I buy bonds through broker or TreasuryDirect? ›

For many people, TreasuryDirect is a good option; however, retirement savers and investors who already have brokerage accounts are often better off buying bonds on the secondary market or with exchange-traded funds (ETFs). Treasury money market accounts also offer more convenience and liquidity than TreasuryDirect.

The actual rate of interest for an I bond is calculated from the fixed rate and the inflation rate. The combined rate changes every 6 months. It can go up or down. I bonds protect you from inflation because when inflation increases, the combined rate increases.

Note that I bonds must be held for at least 12 months before they can be sold. If you hold them for less than five years, you will forfeit three months of interest. You can buy more in TIPS, and their liquidity is an attractive option for some investors. Plus, TIPS pay a fixed interest rate semiannually.

Junk bonds are debt securities rated poorly by credit agencies, making them higher risk (and higher yielding) than investment grade debt. Reinvestment risk is the possibility that an investor might be unable to reinvest cash flows at a rate comparable to their current rate of return.

The initial yield is only good for the first six months you own the bond. After that, the investment acts like any other variable vehicle, meaning rates could go down and you have no control over it. And if you wait until, say, 2026 to buy an I bond, the initial rate could be well below current levels.

I bonds have earned their reputation as an inflation-fighting tool for retirees. As of May 2024, I bonds are returning 4.28%, which is lower than the same period in 2023 but still well ahead of the inflation rate of 3.5%.

Bonds are sensitive to interest rate changes.

Bonds have an inverse relationship with the Fed's interest rate. When interest rates rise, bond prices fall. And when the interest rate is slashed, bond prices tend to rise. Surprise increases or decreases could create temporary instability.

If you're stashing cash for just a few years, locking in one of today's historically high CD rates is the better bet. But for long-haul savings, I bonds can ensure your cash is always safely out-earning inflation.

Historically, bonds have provided lower long-term returns than stocks. Bond prices fall when interest rates go up. Long-term bonds, especially, suffer from price fluctuations as interest rates rise and fall.