In a world where the stock market is unpredictable and interest rates are still high, many investors may be looking for a place where they can best invest their money, even if it means missing out on the opportunity for greater risk. reward. A popular choice are I Bonds: savings bonds issued by the US government. These bonds are virtually risk-free and have robust fixed interest rates. There is generally a $10,000 per year limit on purchasing I-bonds, but there are a few ways to get around this limit.
For more help integrating your financial strategy, consider working with a financial advisor.
I Bonds Basics
I Bonds are issued by the federal government and have a zero coupon rate – plus they are adjusted for inflation every year. The yield will be 3.11% for I-bonds issued until April 2025.
Unlike other US securities, these bonds are sold at face value, meaning if you buy a $100 bond, the price will be $100. The term of the bond ranges from one year to 30 years.
Interest is paid monthly and compounded every six months. The following deadlines apply to I-bonds:
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Within one year of purchase: You cannot redeem the bond.
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Within one year and five years of purchase: You can redeem the bond, but you will lose the interest payments for the previous three months. This is known as ‘early repayment’.
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After five years of purchase: you can redeem the bond without penalty.
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After 30 years of purchase: The bond no longer pays interest.
You do not have to redeem the bond after thirty years, but the bond will start to lose value due to inflation.
How to Avoid the $10,000 I Bond Limit
These bonds are popular, but there is a limit of $10,000 per year that an individual can purchase. That said, there are some loopholes you can exploit if you want to put even more money into these bonds to earn that healthy 3.11% return:
Tax refunds
If you’re expecting a tax refund, you can purchase an additional $5,000 worth of I-bonds. However, there is one problem: they must be paper I-bonds, and not the more popular digital I-bonds. While this involves a bit of hassle, you can eventually convert these paper bonds to digital.
Family ties
The limit is per person – so if you’re married, each spouse can buy $10,000 worth of I-bonds (plus the paper bonds if they have a tax return).
You can also purchase up to $10,000 in I Bonds for your children, but these must be used for the child, such as to save for college.
Companies and trusts
Entities such as corporations and trusts can also purchase up to $10,000 worth of I-bonds. This means that if you own a business and have a living trust, you can purchase up to $30,000 worth of I bonds each year.
