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Things You Should Know In Purchasing I Bonds

Things You Should Know In Purchasing I Bonds
I bonds pay more interest than certificates of deposit or high-yield savings accounts. (Photo: Getty Images)

Even though inflation is slowly going down, savers can still get a good deal on purchasing I Bonds if they buy them before the end of April.

As we’re in the middle of tax season, it’s important to know that you can file a form with your tax return and use up to $5,000 of your tax refund to buy Series I Savings Bonds, also called “I Bonds.” But it wouldn’t hurt to file that return soon so you can lock in a good rate.

Still, you shouldn’t think that purchasing I Bonds is as easy as it was when they became popular in 2022. We’re talking about good rates now, but there are a lot of things we don’t know about rates in the future.

How much do purchasing I Bonds cost?

If you have decided purchasing I Bonds before the end of April, the first six months after you buy them will have an annualized rate of 6.89%. From November 1, 2022, until April 30, 2024, the starting rate is used for I Bonds issued by the Treasury Department.

These bonds have a fixed rate of 0.4%, which is a floor rate that stays the same for as long as the bond is in effect. The annualized rate of inflation, which is 6.48%, is then added to the floor. The annualized rate comes out to 6.89% when you round up.

The 6.48% annualized rate will be the same for savers who hold on to older I Bonds for six months, even if they were issued 10 or 20 years ago, because inflation is always being adjusted.

I Bonds can’t be cashed in for cash during the first year. If you cash them out before the five-year mark, you would lose the interest for the last three months. If inflation was very low, you wouldn’t lose much interest.

We don’t know much about where inflation is going in the short term, even though it seems to be slowly going down in the long term.

“It’s all over the place right now,” said Daniel Pederson, a savings bond expert from Michigan and the founder of

Purchasing I Bonds: What You Need to Know

Pederson said that one important thing to know is that the inflation adjustment for I Bonds looks at only the last six months of inflation data, not the whole year.

“With I Bonds, you’re always working with a six-month delay,” Pederson said.

Pederson said that it makes sense to buy before the end of April because that locks in a 6.89% annualized rate for six months. Since it’s been harder to predict monthly inflation data this year, it’s harder to say what will happen with the new rate that was announced on May 1.

The inflation-adjusted rate, which will be announced on that date and will apply to bonds bought from May to October, is likely to be lower and could be anywhere from 2% to just above 5%, depending on the actual inflation data, Pederson said.

The rates for I Bonds are set twice a year, on November 1 and May 1. The most recent data on inflation, which includes October, November, December, and January, suggests that a lower rate will be announced in May.


How fast is the price level going up?

The Labor Department said earlier this month that the consumer price index, which measures how much people pay for a wide range of goods and services, went up 6.4% in January over the past year.

The inflation index went up 0.5% from December to January. In December, it went up 0.1%.

Even though the Federal Reserve has raised rates eight times in less than a year to slow things down, consumers still have to deal with inflation.

Omair Sharif, founder and president of Inflation Insights in Pasadena, California, said that January’s results shouldn’t have come as a big surprise.

“Recession talk has been all over the place for the past few months, so it’s not surprising that companies took the chance to raise prices,” Sharif wrote in an alert. He pointed out that it could have been their last chance to raise prices before the economy got worse.

Since inflation hit a year-over-year high of 9.1% in June, which was the biggest increase in 40 years, it has gone down. As inflation rose last year, purchasing I Bonds got a lot of attention when they paid an annualized rate of 9.62% for a six-month period from May 2022 to October 2022. Interest is added every six months.

Things You Should Know In Purchasing I Bonds

There is an investment that is 100% backed by the U.S. government, never loses value, and pays more than 7% interest a year. So, why haven’t Series I savings bonds been heard of by most Americans? WSJ’s Dion Rabouin explains. (Photo: TNS/Zuma Press)

How to use a tax return in purchasing I Bonds

People who are getting a tax refund when they file their taxes in 2022 are eligible purchasing I Bonds directly for $5,000 worth.. Part 2 of Form 8888 is filled out to ask that your tax refund be used to buy paper bonds. This is done along with your tax return.

On top of the $10,000 limit per person per year, there is a $5,000 limit on tax refunds. In theory, a single person with a big tax refund purchasing I Bonds could buy up to $15,000 worth in a single year. Using this method, a married couple could spend up to $25,000 in a single year.

Each year, a single saver can buy up to $10,000 in electronic purchasing I Bonds without using their tax refund. A married couple can buy up to $20,000 in I Bonds without using their tax refund.

If you bought the most I Bonds you could in 2022, you can still buy more in 2023.

You can only buy paper savings bonds with your tax refund. If you don’t get a tax refund, purchasing I Bonds can be online at

Paper I Bonds come in $50, $100, $200, $500, and $1,000 amounts. You could get more than one paper bond in order to fill the order. TreasuryDirect decides how much money to send.

The IRS says that a taxpayer doesn’t need a bank account to use a federal tax refund to buy I bonds. An IRS alert says, “In purchasing I bonds with your tax refund, you can choose to get any money left over that wasn’t used to buy bonds sent to you as a paper check.”

You don’t have to put your whole tax refund into I Bonds, which are considered a safe investment.

For example, if the government owes you $2,500, you could put $1,000 toward I Bonds. Then tell the IRS to put the rest of the money in your savings account, checking account, or somewhere else.

You can buy savings bonds for someone else, like a child or grandchild. With Form 8888, you can give someone else ownership or co-ownership or choose a beneficiary. Carefully read the Form 8888 instructions to learn the rules and limits. The paper bonds will be sent to the address the IRS has on file for you.

How do taxes work with savings bonds?

Don’t look through your mail for a 1099 just because of purchasing I Bonds last year, like millions of other people did.

If a saver cashed in a savings bond or sold a marketable security that earned interest in 2022, they would get a 1099. You don’t get a 1099 if you own I Bonds, whether they are on paper or online.

The Treasury says that if you cashed out an electronic savings bond through TreasuryDirect last year, your 1099 will be in your TreasuryDirect account by January 31. You’d have to sign in to your online account. Then follow these steps:

At the top of the page, click “ManageDirect.”
Choose the right tax year under “Manage My Taxes.”
Choose the link near the top of your list of taxable transactions to see your 1099.
If you sent your paper savings bond to the Treasury to be cashed and got the money in 2022, the 1099 form should have been sent to you by January 31, 2022.

One important thing to remember is that if you cashed in your paper savings bonds at a local bank, Treasury notes, that bank should give you your 1099.

Interest on savings bonds is not taxed at the state or local level, but it is taxed at the federal level. Most of the time, you don’t have to pay taxes until you cash in the bond or it reaches its final maturity.

Savers can keep track of and claim interest each year on their federal income tax returns. Many people don’t do that, but some do.

Savings bonds are not exempt from any federal or state taxes on estates, gifts, inheritances, or other types of excise.

If you cash in a savings bond to pay for school, you might get a tax break if you qualify. This is true for Series I or Series EE savings bonds issued after 1989. To qualify, the person named on the bond must be at least 24 years old when the bond is issued, among other rules. So, the Treasury says, “a bond issued in the name of a child will not be eligible even when the child is ready for college years later.”

After I file my taxes, when will my I Bonds come?

The IRS will have to process your return first. The fastest way to get a tax return processed is to file it electronically and correctly; don’t send it in the mail.

Given the delays in the system, you don’t want to wait until the last minute, file your federal income tax return on April 18 to meet the deadline, and then expect to get your savings bonds by the end of April. If you wait too long, it might not come out until May or later. says that the date of issuance for paper bonds will be the first day of the month in which the IRS sends payment for the bonds to Treasury Retail Securities Services in Minneapolis. For example, if the IRS sends your order to Minneapolis on February 18, your savings bonds will be sent out on February 1.

“If you e-file your tax return soon, you might get bonds with a date of issue in March or April,” said IRS spokesman Eric Smith.

“You should get your savings bonds within three weeks after they are issued.”

The IRS says, “If you have some of your refund directly deposited into your bank account, you may get your refund before your savings bonds arrive in the mail.”


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