Over the past few years, Series I bonds have become a popular investment choice for many individuals. These bonds offer the security of a U.S. government savings bond along with an inflation-protected yield that adjusts as inflation rises, safeguarding your purchasing power.
Despite their popularity, there are several myths surrounding Series I bonds and how they function. Here are the top five myths debunked:
Myth #1: Annual Limit of $10,000 for Series I Bonds
While there is a $10,000 limit for purchasing electronic I bonds directly from the U.S. Treasury each year, individuals can also buy up to $5,000 in paper I bonds using their federal income tax refund. This means an individual could potentially acquire up to $15,000 in I bonds annually, while a family of four could invest up to $60,000 using both methods.
Keep in mind that this strategy may require adjusting your tax withholding to have a sufficient refund for bond purchases.
Myth #2: Unlimited Purchase of Series I Bonds Through Entities
For those who own a business or LLC, it is possible to purchase up to $10,000 in Series I bonds through the entity. By setting up multiple LLCs, individuals can essentially buy an unlimited amount of I bonds.
Myth #3: Full Six Months of Interest Regardless of Purchase Date
Contrary to belief, buying a Series I bond at any point during a six-month period entitles the investor to receive the full six months of interest at the stated rate. This ensures that investors get the effective rate for the entire six-month period.
Myth #4: Deadline for Current Interest Rate
While investors can purchase bonds up until the deadline for the current interest rate, it is crucial to allow sufficient time for the U.S. Treasury to issue the bond before the deadline. Cutting it close may result in receiving the next period’s interest rate.
Myth #5: Holding Period for Interest Accrual
With Series I bonds, investors do not need to hold the bond for a full month to receive interest for that month. Interest is credited from the first day of the month the bond is purchased, allowing investors to maximize their interest earnings.
Conclusion
Understanding the nuances of Series I bonds is essential for investors looking to capitalize on this low-risk investment option. While the inflation protection feature is attractive, it is important to consider that rates may decrease in response to inflation.