How to buy savings bonds through Treasury Direct to take advantage of the current 9.62% yield on I bonds

The internet is abuzz with the fact that I bonds– which are savings bonds available from the US Treasury’s site– are yielding 9.62% from May 2022 – Oct 2022. Since this is the variable, inflation-based yield part of inflation-adjusted I bonds, this is subject to change every 6 months, but is still a great deal vs what’s out there today for yields.

Yes, this is really the official US Treasury’s website, apparently created in 1996…

If you’d like to go through the small hassle (~30 minutes or less!) of creating a Treasury Direct account, you can open an account today and buy up to the maximum of $10,000 per person– or per entity, such as a business or trust– per year of I bonds to pick up at least a couple hundred bucks of interest above what you can get in other fixed investment today.

Important things to know about savings bonds

  • You MUST hold I bonds for at least 1 year, so this should be money you absolutely don’t need for at least a year.
  • The variable part of the I bond interest rate– which is based on inflation– can change every 6 months, but the fixed rate (currently 0%) will remain the same for the 30-year life of the bond.
  • If you sell your I bonds within 5 years of purchase, you forfeit the last 3 months of interest.
  • As long as you have a social security number, US citizens, residents, and civilian employees can all buy I bonds.

What will your actual yield be?

To conservatively estimate your 1 year yield, assume 9.62% for 6 months and maybe 2% for the next 6 months (a pessimistic assumption, but in line with inflation estimates) = average of 5.8%, then multiply by 3/4 to remove 3 months’ of interest = 4.4%. This is likely the worst-case scenario for what you’ll make over 1 year.

Currently, 1 year treasury rates are 2%, so you’re getting at least a 2.4% bump over an equivalent ‘risk-free’ (since it’s backed by the US guv’ment) investment. This means if you max out at $10 K, you’re picking up an extra $240 for your trouble. Not life-changing, but likely well-worth it from an hourly wage perspective! If you can do it for yourself and, say, your spouse or child, that’s all the better.

Open a Treasury Direct account

Go here and open an account. Leave ‘Individual’ checked if this is for yourself. If you’re creating an account for your minor child, you need to first create & login to your own account, and then follow this guide.

The $10 K annual limit of I bonds is per recipient, so gifting $10 K to your minor child(ren) is totally allowed, but keep in mind that it truly must be a gift– used for the benefit of your minor child; no take-backsies– and counts towards the annual gift limit for them ($16,000 per giver + recipient combo in 2022. Couples can give 2x the individual limit since each person can give $16 K apiece.)

When you finish registering and setting a password and connecting your bank account, you’ll get an account number sent to your email to login with as your username. Make sure to remember/jot down your password since you have to use a mouse to enter it, and therefore can’t use a password-remembering tool…

Buy your bonds

Click ‘BuyDirect’ and choose the series of bonds you’d like (Series I for I bonds), and follow the prompts. Your trade should be executed the next business day.

So there you go! Create an account today and buy the limit IF you don’t need the money for 1 year and have already maxed out your tax-advantaged sources of savings like your 401k, Roth IRA, HSA, etc.

Add a beneficiary (or second owner)

I recommend you also add a beneficiary to your account. Follow these instructions: Click ‘ManageDirect’, ‘Add a Registration’, then check ‘Beneficiary’ (if you’re adding a beneficiary), fill out YOUR info in the ‘First-Named Registrant’ section, and then your beneficiary’s (or secondary owner’s) info in the next section. Check ‘Make this my preferred registration’ at the bottom before you hit ‘Submit’.

Does this sound hard? Considering engaging a trustworthy financial advisor, me.

Author: Ward Williams

Ward is an independent financial advisor at Better Tomorrow Financial. He started working as an independent investment advisor in 2009.

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