Hello and welcome to TreasuryDirect.
This video is intended to walk you through all you will need to know
about the Series I Savings Bond, how interest is calculated and earned,
and how you can purchase, cash, and hold on to these securities.
To begin, let's talk about some of the basics.
An I Bond is a U.S. Savings Bond,
which is a loan made to the United States by an investor,
which is then paid back to you with interest.
It is one of two options currently, with the other
being the series EE Savings Bond.
Because U.S. Savings Bonds are backed by the full faith and credit of the U.S. Government
They are very safe.
They are registered securities, meaning that only the person or persons
named on the Bonds have any authority to request transactions.
Some key terms to remember is that both U.S. Savings Bond options earn interest for up to 30 years.
You can cash them prior to the 30-year mark, but there are a few things to consider.
First, you are required to wait a full year before you can cash it.
And second, if you are cashing it prior to the Bond reaching five years old,
you will forfeit the final three months of interest as a penalty.
After it has reached five years, you can cash at any point
for the current value of the Bond, with no penalty.
The interest earned on the Bonds is accrued, or added to the Bond,
over the course of its lifetime, and all of it is paid out when you cash it in.
While they are not taxed at the state or local level,
you will be required to report any interest earned at the federal level.
Typically, this is reported on your taxes for the year you cash it out,
but it can be done yearly, if you choose.
Finally, there are some limits to the dollar amount you can purchase.
The minimum amount is $25 with a maximum purchase limit of $10,000
per calendar year, per Social Security Number, of the primary owner.
What sets the Series I Bond apart is how it protects you from inflation.
The Bond interest rate features two components:
a fixed rate and a semi-annual inflation rate.
After you purchase the Bond, it will earn interest every month
and that interest is compounded semi-annually.
This means every six months, we apply the new interest rate
to the original purchase amount, and all the interest that has been added to the Bond's value.
So, your Bond's value grows both because it earns interest
and because the principal value that the interest rate is applied to gets bigger.
The majority of I Bonds are purchased online through a TreasuryDirect online account.
You can make purchases for yourself in any dollar amount to the penny
from $25 up to the annual max of $10,000.
The Bond may be registered in your name alone, your name with a secondary owner,
or your name with a beneficiary.
The only way to purchase paper versions of the Bond
is to use the funds from your federal tax refund.
On the IRS Form 8888,
you may elect to receive up to $5,000 of your refund
in the form of paper Series I Savings Bonds or have the funds
deposited into your TreasuryDirect account to purchase I Bonds in electronic form.
This $5,000 limit does not affect the $10,000 limit described earlier,
meaning you can purchase up to $15,000
in Series I Bonds in a year for yourself
as long as $5000 comes from your tax refund.
You can also make purchases for others by creating a gift registration
which will have someone else's name and Social Security Number,
and will affect their purchase limit,
once you deliver it to them in electronic form.
They will need to have a TreasuryDirect account in their name
to take delivery of the Bond and to cash the Bond.
For the paper Bonds from your tax refund, you would just put the recipient's
name in the registration.
If you would like to register a Series I Bond for an entity account,
like a trust, estate, or corporation,
you will need to establish an entity TreasuryDirect account.
To create an entity account, you must be authorized to act alone
on behalf of the entity, and all purchases will belong to that entity.
One of the best ways to learn more about
Series I Bonds is through the website TreasuryDirect.gov.
On the home page, you will be able to see the current I Bond interest rate.
This rate is valid for all I Bonds purchased in the current earning period.
Clicking the Series I Savings Bond link will provide more information.
As we talked about earlier, Series I Bonds earn interest using an earnings rate,
which is a combination of two separate rates, a fixed rate and an inflation rate.
The fixed rate, which is set at the time of purchase,
will never change over the life of the Bond.
The semi-annual inflation rate is based on the average price of consumer goods
using the Consumer Price Index of all Urban areas.
As the average cost of goods like groceries, gas, and clothes
go up, the interest rate will also go up.
As the cost of these goods decreases, the interest rate will also go down.
We recalculate this interest rate every six months,
announcing the new rate every May 1st and November 1st.
Now, one benefit to Series I Savings Bonds is that even in periods
of deflation, times when the price of goods has dropped,
the value of the I Bond will never go negative.
Even when the inflation rate is negative and would cause the earnings rate
to be negative, we stop the combined rate from going below zero.
So, while you will not gain any interest during that period,
you will also not be losing any money.
The earnings rate is calculated using a formula
which is found on the TreasuryDirect.gov website.
It takes the fixed rate and the semi-annual inflation rate
and calculates them using the formula of
the fixed rate plus two times the semi-annual inflation rate
plus the fixed rate times the semi-annual inflation rate.
Your earnings rate will change every six months
based on the issue date of your Bond.
While the inflation rate is announced each May 1st and November 1st,
your Bond will pick up the most recent inflation rate
when your Bond reaches its next six month anniversary.
The new inflation rate and your fixed rate are used in the formula
to determine your new earnings rate for the next six months.
Here's an example: You purchase a Bond in July.
Its inflation rate, and thus its earnings rate,
will change every July and January.
The fixed rate at purchase will not change, but each July,
the May inflation rate will be used to calculate your new earnings rate
for the period of July to December.
Each January, the November inflation rate will be used to calculate
your new earnings rate for the period of January to June.
So now that we know more about
how the Bond works, let's talk about how to purchase one.
TreasuryDirect.gov has information under the Savings Bonds tab.
Select the Buy a Bond link.
Since we know that the majority of Bonds are electronic,
let's choose the Buying Electronic EE or I Savings Bond link.
TreasuryDirect is an online account that allows customers to purchase,
hold, and cash, Electronic Savings Bonds and Marketable Securities.
TreasuryDirect.gov does have a guided tour to walk
you through the process of creating an online account.
Let's look at it now.
The first step is to determine the type of account you would like to open.
In this example, it will be an individual account,
which is already pre-selected.
Then scroll down and click the Submit button
on the Individual Account Application page.
You must provide all the information in the required fields.
Once you've provided the information, scroll down and check the box
to certify your taxpayer ID Number information.
Then click Submit.
On the review page,
verify that all the information is correct
and click Submit.
You will then select an image and enter a caption
to be associated with your account.
When completed, click Submit.
Next, you will need to enter a password, a password reminder
and three security questions and provide answers to them.
Once completed, click Submit.
That's it. You've established an individual account with the U.S. Treasury
Check your email to retrieve your TreasuryDirect Account number.
Let's meet Sam.
Sam wants to create a TreasuryDirect Account so that he can purchase a Series I Bond.
Sam goes to TreasuryDirect.gov,
creates an individual account and logs into his account the first time.
After Sam logs into his TreasuryDirect account,
he can click on the How Do I? link to learn more about the process.
The How Do I? section has great information about the main activities in TreasuryDirect.
To purchase an I Bond, Sam will need to create a registration.
This will allow him to select a secondary owner,
a beneficiary, or to create a gift registration.
Let's now talk about how the I Bond grows.
Here comes Sam again.
Sam has decided to purchase a Series I Savings Bond in his TreasuryDirect Account.
He decides to purchase $100 on Friday, July 8th.
Because the Bonds will take a business day to process, the Bond will be delivered
to his online account on Monday, July 11th.
But since the Bond earns interest at the start of each month,
it will have an issue date of July 1st.
The earnings rate, that combined rate we talked about earlier, will be set
with the fixed rate and the inflation rate that was announced the previous May 1st.
It's now November, and Sam's Series I Bond
has now reached the tender age of five months old.
This is the first time that Sam will start to see
any of the interest being earned on the Bond.
Remember how you forfeit the final three months of interest
if you were to cash a Savings Bond before five years?
Well, TreasuryDirect will calculate that into the value of the Bond.
As the Bond grows, so will the interest.
And once it reaches five years,
all the hidden interest will be added back into the value.
Also, it is important to note that while a new earnings rate
will be announced on the 1st of November,
it will not affect Sam's I Bond until it passes its six month mark.
Sam's I Bond is now entering into the seventh month of his life
and is about to experience a big change.
The earnings rate that was announced in November will now
take effect on this I Bond as it has passed the six month mark.
The fixed rate will stay the same, but will be used with a new inflation rate
to calculate the new earnings rate for the next six months.
This is also the first time the I Bond will compound the interest,
meaning it will start calculating the new earnings rate
based off the principle and the interest earned so far
Happy birthday!
Sam's I Bond is now one year old.
Two major milestones will be achieved this month.
First, the earnings rate will change again,
this time to the rate that was announced the previous May.
The interest will further compound at this point too.
The other major milestone is that the Bond will now,
for the first time, be eligible for redemption.
Keep in mind that the value listed on TreasuryDirect
will factor in that three month penalty for early redemption.
So Sam will only see interest that is eligible to be cashed out,
not the three months that would be withheld.
Now that Sam's Bond is five years old, it will hit a few milestones.
First, it will take on a new earnings rate
just like it has done every six months since it was issued.
Secondly, the Bond is now eligible for redemption without any penalty.
The current value of the Bond in Sam's TreasuryDirect account
will now show the full value with all the interest earned to date.
Moving forward, the earnings rate on Sam's Bond will continue to change
every six months until it has reached the ripe age of 30 years old.
Once Sam's Bond reaches 30 years old on the first day of the month,
the final interest payment will be added to the value of the Bond.
The Bond is now considered mature and will no longer earn interest.
Since Sam's Bond is electronic, it will automatically cash itself
into Sam's C of I account, allowing him to use the money to purchase future
I Bonds, other securities, or to send his money to his bank account.
Sam will also receive a 1099 INT the following January
in his TreasuryDirect account to report the interest to the IRS.
And with that, the life cycle of a Series I Savings Bond has ended.