Series I savings bonds, also known as “I Bonds,” reentered the mainstream conversation after inflation reached a 40-year high in 2022. I Bonds pay an annualized rate of 6.89% in their most recent release from November 2022. They will continue to pay competitive interest shortly, despite persistent inflation. This article will go over where and how to buy I Bonds on treasury direct online, fidelity, and vanguard with a tax refund, as well as answer a few frequently asked questions.
Where to Buy Bonds
Because of the initial investment required, buying bonds can be more difficult than buying stocks. While most bonds have a face value of $1,000, there are ways to purchase bonds for less. The simplest ways to purchase bonds are through a broker, an ETF, or directly from the US government in $100 increments.
#1. A broker
You can buy bonds from an online broker; learn how to open a brokerage account to get started. You’ll be purchasing bonds from other investors who are looking to sell them using this strategy. By purchasing a bond directly from the underwriting investment bank in an initial bond offering, you may also be able to receive a discount off the bond’s face value.
#2. An ETF
An ETF typically purchases bonds from a variety of companies, with some funds focusing on short-, medium-, and long-term bonds, or providing exposure to specific industries or markets. Individual investors should consider funds because they provide immediate diversification and do not require large purchases.
The term for a bond refers to the amount of time until the bond matures. One significant distinction between short-term and long-term bonds is that longer-term bonds typically offer higher interest rates due to higher interest rate risk. In other words, long-term bonds are more likely to be exposed to and sensitive to interest rate changes over a longer period.
#3. Directly from the U.S. government
The federal government has established a program on the Treasury Direct website that allows investors to buy government bonds directly from the government without paying a commission to a broker or other middleman.
How to Buy I Bonds Online
The most common way to buy I Bonds online is to go to Treasury Direct, the government website where you can buy government securities.
It is possible to buy I Bonds through a payroll savings plan or with an IRS-issued tax refund, but these are much less common methods.
The steps below will show you how to buy I Bonds online for yourself:
- Go to treasurydirect.gov to access the TreasuryDirect website.
- Select “Open An Account.”
- Complete an online account application. Have important information on hand, such as your Social Security number.
- Wait for account approval. Some customers may be required to authenticate their accounts by submitting a paper application with a Medallion Guarantee, a stamp available at many major financial institutions. Expect a several-week delay if you are required to go through this additional step.
- Log in to your new account after it has been approved.
- Select “BuyDirect” from one of the tabs on the banner of your screen.
- Under Savings Bonds, choose “Series I.”
- Enter the purchase price and a funding source. Remember that you can only buy $10,000 in Series I savings bonds per year per Social Security number.
- Complete your purchase.
You can track the value of your bonds as interest accrues by logging into your TreasuryDirect account or connecting it to a financial account aggregator.
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How to Buy I Bonds with Tax Refund
Purchase U.S. Series I Savings Bonds for yourself or anyone else with a portion or all of your tax refund. Series I bonds, issued by the Department of the Treasury, are low-risk bonds that can grow in value for up to 30 years. They earn interest and protect you from inflation while you own them.
Purchasing savings bonds with your tax refund is simple.
Simply inform your tax preparer that you want to buy savings bonds with a portion or all of your refund! If you use tax software to prepare your return, the computer program will guide you. Use Form 8888, Allocation of Refund (Including Bond Purchases) if you file a paper return. The instructions will walk you through what you need to do.
Under this program, you can buy up to $5,000 in I bonds in a single calendar year. If you use your tax refund to buy bonds, the amount you request must be divisible by $50. If you do not use all of your refunds to purchase I bonds, you can have the remaining amount deposited into a bank account, or your Treasury Direct account, or mailed to you as a check. Also, if your refund is $280, for example, you can direct $250 to I bonds and the remaining $30 to your savings account or request a check by mail. You have a choice!
Register paper bonds in your or someone else’s name.
When you use your tax refund to buy savings bonds, you will receive paper bonds in your name or the names you designate as primary owner, co-owner, or beneficiary. You can request up to three different savings bond registrations: for yourself and your spouse, if you’re married and filing a joint return, or for someone else. Bonds will be issued in the names shown on the return if you order bonds for yourself and your spouse.
Your request will be handled in 2 parts.
Part 1: Generally, you will receive the bonds after receiving the remainder of your tax refund from the IRS. The IRS will process the portion of your refund that you do not intend to use to purchase savings bonds. This amount will be deposited into the account you specify or mailed to you as a paper check. To check if Part 1 is complete, go to Where’s My Refund? or call 800-829-1954.
Part 2: The IRS will forward your request for savings bonds to the Treasury Retail Securities Site. It could take them up to three weeks to send your bonds to the address on your tax return.
How to Buy I Bonds Fidelity
Here’s a quick rundown of how to buy Treasury bonds on the secondary market through my Fidelity brokerage account.
#1. Determine your eligibility.
Because the United States Treasury does not allow anyone to purchase I bonds, you must first determine whether you qualify.
You must be one of the following:
- A U.S. citizen, even if you live abroad
- A U.S. resident
- A civilian government employee in the United States, regardless of where you live
Furthermore, trusts and estates may buy I bond on fidelity in certain circumstances, but corporations, partnerships, and other organizations may not.
#2. Create a TreasuryDirect account.
If you meet the requirements, you can open a TreasuryDirect account. You can use this account to buy bonds (including Series EE bonds), Treasury bills, Treasury notes, Treasury bonds, and TIPS directly from the government.
A taxpayer identification number (such as a Social Security number), a U.S. address of record, a checking or savings account, an email address, and a web browser that supports 128-bit encryption is required for individuals opening a TreasuryDirect account.
You’ll enter your information as directed and have your account up and running in a matter of minutes. To help protect your account, you’ll create a password and three security questions.
Children under age 18 cannot set up a TreasuryDirect account directly, but a parent or other adult custodian may open an account for the minor that is linked to their own.
#3. Submit your order
After you’ve created your account, TreasuryDirect will email you your account number, which you can use to log in. Once in the account, click “BuyDirect,” then select Series I bonds and the amount you want to buy. Then choose your bank account and the date you want to make the purchase. You can also set up recurring purchases.
For electronic bonds over $25, you can buy in any increment down to the cent. That is, if you wanted, you could buy a bond for $76.53.
Review your purchase before submitting your order. Once your order is complete, your bonds will be stored in your TreasuryDirect account, where you can access them at any time.
If you want to use your federal tax refund to buy paper I bonds on fidelity, you must complete Form 8888 and submit it with your tax return.
How to Buy I Bonds Vanguard
To learn how to buy I bonds vanguard, follow this step-by-step guide:
Step 1
Navigate to Buy & Sell from the My Accounts tab. Select Check Rates and Trade Bonds from the Buy & Sell landing page.
Step 2
If you have more than one account, you must choose which one to use for your purchase.
Step 3
Select the appropriate yield from the Bonds section of the Quick search tab on the vanguard to select the type of bond, maturity, and credit quality. Alternatively, you can search for a bond using the Agencies, Municipals, or Corporates tabs.
Step 4
Examine the displayed search results. When you click the Buy button in the Action column next to the bond you want to buy, the product description page will appear. Examine the bond’s details and click BUY to proceed.
Step 5
Enter the quantity to indicate the number of bonds you want to buy. Then, press the CALCULATE button to fill out the trade details. Once you’ve reviewed the information, click CONTINUE.
Note that before you can click CONTINUE, you must first check the box that says you have reviewed the details of the security you are purchasing.
Step 6
Examine the specific details of your order. When you’re ready to complete your purchase, click SUBMIT.
You’ll be taken to a confirmation screen with an order summary. At the top of the summary, you’ll see an order confirmation number. The confirmation screen only confirms the placement of your order. To check the status of your order, click “My orders and quotes.”
Read Also: ALTERNATIVE INVESTMENTS: Types of Alternative Investment You Should Know
What is the best way to buy I bonds?
The main method is to go online using TreasuryDirect.gov, and the I bonds purchased through this website are digital. There is also a completely separate method for purchasing paper I bonds.
What is the downside of buying an I bond?
Only the first six months of ownership are covered by the initial rate. After that, the rate can drop to zero. One-year lock up. You won’t get your money back in the first year, so don’t invest any funds you’ll need right away.
How do I buy an I-series bond?
Navigate to your TreasuryDirect account. Select BuyDirect. Select either EE or I bonds, and then click Submit. Complete the remaining fields.
Is an I bond a good investment?
Yes. I bonds can make good short-term investments, but you should feel comfortable holding them for at least one year and ideally, five years before cashing them in.
Can you ever lose money on an I bond?
No, I Bonds cannot lose value. The interest rate cannot fall below zero, nor can the redemption value of your I bonds fall.
Can I buy Series I bonds through my bank?
Series I bonds can only be purchased directly from the US Treasury in two ways: through TreasuryDirect.gov or with your federal income tax refund.
Do you pay taxes on I bonds?
Bond interest is reported on your federal income tax return on the same line as other interest income.
Can you buy more than $10000 worth of I bonds?
Yes. The annual limit for I bonds purchased through Treasury Direct is $10,000 in general.
Conclusion
Bond investments should be included in a well-diversified portfolio, and most brokers now provide easy access to the bond market, either directly or through bond mutual funds or ETFs. However, when viewed as a whole, the bond market can be complex and overwhelming. Depending on your investment goals, tax exposure, risk tolerance, and time horizon, different types of bonds will be most appropriate for you. Knowing the risks and characteristics of each type of bond can help you decide when and how much of that asset class to include in your portfolio.
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