Arthur Stein CFP®
If your emergency funds are in bank accounts, it’s time to think about Series I Savings Bonds (I Bonds) from the U.S. Government, through TreasuryDirect. These bonds are currently paying 7.1% in interest.
Yes, there are disadvantages, explained below. However, transferring some of your emergency funds to Series I Savings Bonds will probably be a profitable exchange with little risk.
I Bonds are 30-year bonds issued and guaranteed by the U.S. Treasury. There are two sources of interest income:
– A rate based upon recent inflation, currently 7.12%. That rate is guaranteed for six months and then adjusts for inflation over the last six-month period. The current rate will be adjusted in April.
– A rate fixed for the life of the bond, currently 0%.
Interest is added semi-annually to the value of the bond. If you hold the bond for at least five years, when you cash in (redeem) the bond, you receive all the interest the bond has earned plus the amount you paid for the bond. Taxes on the interest are only due when you redeem the bond.
Advantages of Series I Savings Bonds include:
- Guaranteed by the U.S. Government.
- Currently, a much higher interest rate than bank accounts and CDs.
- No commissions (to buy or sell) or any other fees.
- Whether you sell an I Bond before it matures or hold it to maturity, you always receive full face value plus interest. Example: pay $10,000 for $10,000 of bonds and receive $10,000 plus interest when sold.
- Taxes on interest are postponed until a bond is sold or matures.
- Interest is exempt from state taxes.
- Interest earnings may be excluded from Federal income tax when used to finance education (see education tax exclusions).
Disadvantages:
- I Bonds cannot be sold for 12 months after the original purchase. Don’t invest funds you might need to spend within twelve months.
- There is a penalty equal to three months of interest if a bond is sold less than five years after purchase
- Interest earned is subject to Federal income tax (but only when a bond is sold or matures).
- Purchases and sales can only occur in a TreasuryDirect® account; they cannot be purchased, held or sold through Arthur Stein Financial, a 401k, the TSP, a Registered Investment Advisor, stock broker, bank or credit union.
The maximum investment is $10,000 per calendar year per social security number. The minimum investment is $25.
A parent or other adult custodian may open a Treasury Direct account for a child that is linked to the adult’s Treasury Direct account. The parent or other adult custodian can buy securities and conduct other transactions for the child, and other adults can buy savings bonds for a child as gifts.
More detailed information can be found at Treasury Direct. The link to purchase Series I Savings Bonds is here.
About Arthur Stein
Art is a Certified Financial Planner® with 29 years of experience providing assistance to Federal employees and retirees. He is known for his knowledge of the Thrift Savings Plan (TSP) and other Federal retirement benefits. He provides assistance in financial advice — including retirement planning — and investment management. He can be contacted at Arthur Stein Financial, LLC
Art is a Certified Financial Planner® with 29 years of experience providing assistance to Federal employees and retirees. He is known for his knowledge of the Thrift Savings Plan (TSP) and other Federal retirement benefits. He provides assistance in financial advice — including retirement planning — and investment management. He can be contacted at Notes:
This is for educational purposes only. To learn more about the topics mentioned and if they are suitable for you, consult an appropriate professional. Tax laws can change at any time.
Any information provided in this presentation has been prepared from sources believed to be reliable, but is not guaranteed and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for information purposes only and does not constitute a recommendation.
Arthur Stein and Arthur Stein Financial, LLC are not authorized to give legal or tax advice. For information on your specific situation, please consult your tax advisor regarding any tax implications and your attorney for legal implications. As required by the US Treasury Regulations, you should be aware that this presentation is not intended to be used and it cannot be used for the purposes of avoiding penalties under federal tax laws.
Keep in mind that:
Past performance is no guarantee of future performance;
Investments involve the risk of loss of principal and earnings;
None of the information provided is necessarily relevant to anyone’s personal situation. Circ*mstances differ among individuals and you should not assume that these generalizations or information apply to you.
Investments mentioned may not be suitable for all investors.
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Related:
- Series EE and Series I Savings Bonds Interest Can Be Excluded from Tax If Used to Pay Qualified Educational Expenses
