In a world where the stock market is unpredictable and interest rates are rising, many investors are looking for someplace to put their money that is as close to risk-free as possible — even if it means forgoing the chance for a bigger reward. One increasingly popular pick are I Bonds, savings bondsissued by the U.S. government. These bonds are virtually risk free and have a robust fixed interest rate. There is generally a $10,000 limit per year for purchasing I Bonds, but there are a few ways to get around this limit.
For more help working I bonds into your financial strategy, consider working with a financial advisor.
Understanding I Bonds
I Bonds are issued by the federal government and carry a zero-coupon interest rate — plus, they are adjusted each year for inflation. The variable return will sit at 5.27% through April 2024. Unlike other U.S. securities, these bonds are sold at face value. This means if you purchase a $100 bond, the price will be $100. The bond duration runs from one year to 30 years.
Interest is paid every month and compounds every six months. The following deadlines apply to I Bonds:
Within one year of purchase: You cannot cash the bond.
Within one year and five years of purchase: You can cash the bond but forfeit the previous three months’ interest payments. This is known as “early redemption.”
After five years of purchase: You can cash the bond with no penalty.
After 30 years of purchase: The bond ceases to pay interest.
You don’t have to cash the bond after 30 years, but it will start to lose value against inflation. Unfortunately, there is a limit to how much you can buy each year, for yourself, in these bonds. That doesn’t mean you can’t get around that limit, though, depending on your situation.
How to Get Around 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 nab that healthy 5.27% yield. Here are the most popular methods or loopholes:
1. Tax Refunds
If you are expecting to get a tax refund, you can purchase an additional $5,000 in I Bonds with the money the government owes you. There is one catch, though as they have to be paper I Bonds, not the more popular digital I Bonds. While this adds a bit of complexity, you can eventually convert these paper bonds to digital ones down the line.
2. Buying for Multiple Members of the Family
The limit is per person, so if you’re married then each spouse is allowed to purchase $10,000 in 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 they must be used for the child, possibly as a college savings tool.
3. Businesses and Trusts
Entities like businesses and trusts can also purchase up to $10,000 in I Bonds. This means that if you own a business and you have a living trust, you can purchase up to $30,000 in additional I Bonds each year.
While any of these can be a good way to increase the amount of I Bonds you’re able to buy, using multiple options together can help you maximize the number of bonds you’re able to purchase and earn the current high yield on.
Bottom Line
I Bonds are a virtually risk-free investment, which makes them very popular in times of market uncertainty such as right now and as inflation devalues your cash. That said, there is a $10,000 limit each year for purchasing them. There are several ways around this limit, though, including using your tax refund, having your spouse purchase bonds as well and using a separate legal entity like a trust. Finding the right solution(s) for you can increase the amount of “free money” you’re able to receive on these nearly risk-free investments.
For help using I Bonds as part of your strategy, consider working with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Building a dividend stock portfolio is another way to use investments to create income.
That said, there is a $10,000 limit each year for purchasing them. There are several ways around this limit, though, including using your tax refund, having your spouse purchase bonds as well and using a separate legal entity like a trust.
Yes. I bond purchase limits are based on a person's Social Security number. So a married couple can buy up to $30,000 in I bonds annually. Each spouse can buy $10,000 in electronic I bonds and $5,000 in paper I bonds, assuming their federal tax refund is large enough.
A given Social Security Number or Employer Identification Number can buy up to these amounts in savings bonds each calendar year: $10,000 in electronic EE bonds. $10,000 in electronic I bonds. $5,000 in paper I bonds that you can buy when you file federal tax forms.
You fund your TreasuryDirect account through your bank account or by payroll deduction. Securities you buy in TreasuryDirect are electronic, not paper. If you hold savings bonds in paper form, you can convert them to electronic securities in TreasuryDirect.
That said, there is a $10,000 limit each year for purchasing them. There are a number of ways around this limit, though, including using your tax refund, having your spouse purchase bonds as well and using a separate legal entity like a trust.
Normally, you're limited to purchasing $10,000 per person on electronic Series I bonds per year. However, the government allows those with a federal tax refund to invest up to $5,000 of that refund into paper I bonds. So most investors think their annual investment tops out at $15,000 – one of the key I bond myths.
There's actually a limit on how much you can invest in I-bonds per year. The annual maximum in purchases is $10,000 worth of electronic I-bonds, although in some cases, you may be able to purchase an additional $5,000 worth of paper I-bonds using your tax refund.
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).
Answer and Explanation: The amount of $100,000 will grow to $432,194.24 after 30 years at a 5% annual return. The amount of $100,000 will grow to $1,006,265.69 after 30 years at an 8% annual return.
TreasuryDirect is free. There are no fees, no matter how much or how little you invest. You may hold both savings bonds and Treasury marketable securities in TreasuryDirect. Your securities in TreasuryDirect are electronic, so you don't have to worry about them getting lost, stolen, or damaged.
Yes, I bonds are subject to taxation. But they provide certain tax benefits that distinguish them from other investments and can result in lower tax payments. The original amount you invested in the bond isn't taxed, but the interest earned is.
If the beneficiary has a TreasuryDirect account, the security will be transferred to that account. If the beneficiary does not have an account, he or she may establish an account. Alternatively, a beneficiary named on a savings bond may request redemption.
Once in your TreasuryDirect account, the bond will be registered in your name alone. You can then add either a secondary owner or beneficiary. Once you have a TreasuryDirect account, you can convert other paper bonds you own to electronic bonds.
But this cap is per recipient. That means you can buy $10,000 worth of electronic I bonds for yourself and an additional $10,000 for another person. The only way to gift paper I bonds is to purchase them with your tax refund. You can buy up to $5,000 in I bonds per recipient this way.
Key Points. Pros: I bonds come with a high interest rate during inflationary periods, they're low-risk, and they help protect against inflation. Cons: Rates are variable, there's a lockup period and early withdrawal penalty, and there's a limit to how much you can invest.
The limit is per person, so if you're married then each spouse is allowed to purchase $10,000 in I bonds (plus the paper bonds if they have a tax return).
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