Inflation Spotlight: Everything you need to know about Series I bonds

If you’re looking for a low-risk asset where your money can grow faster than the current rate of inflation, Series I bonds could be the answer, experts say. But what are Series I bonds and how can you invest?

What are Series I Bonds?

You may have heard that when interest rates rise, bond prices fall as bond yields rise. Series I bonds are the referenced investments in this scenario. And with interest rates soaring, investors are scrambling to buy Series I bonds.

See: 5 Best Towns in the South to Retire on a Budget of $1,500 a Month
Find: Here’s how much cash you need to stash away if a national emergency occurs

Series I bonds have a fixed rate and a variable rate. The variable rate adjusts every six months based on the Consumer Price Index, which is one of the main measures of inflation in the United States.

Series I bonds purchased through October 2022 will yield a yield of 9.62% for the first six months after purchase. After that, the rate will be adjusted for inflation. Interest on Series I Bonds is compounded semi-annually.

The wrong side? The process of buying bonds is not as simple as you might imagine. It’s not enough to download an app and make your choices, as you would when investing in stocks. CNBC recently quoted financial planner Matt Stephens, who likened the process of buying bonds to “going to the DMV online.”

What you need to know before investing in Series I bonds

You can buy I bonds, as they are called, through the government website TreasuryDirect.gov. You can buy e-bonds in any amount starting at $25.

You can only buy paper bonds using money from your federal income tax refund, and they are available in increments of $50, $100, $200, $500, and $1,000.

Each calendar year, you can purchase up to $10,000 of electronic I Bonds and up to $5,000 of paper I Bonds. You buy bonds at face value, so you’ll pay $50 for a $50 bond.

If you plan to invest in bonds, keep in mind that you will need to hold the bond for at least one year. And if you cash it before five years, you will lose the previous three months of interest. When you sell a bond, you must pay federal tax on the interest.

Related: 6 Alternative Investments to Consider for 2022

How to Buy Series I Bonds

To purchase Series I bonds, you will need to create a TreasuryDirect.gov account. Videos are available on the site, as well as a guided tour, to help you navigate this complex process. Washington Post columnist Michelle Singletary noted that it took her 20 minutes to create an account. And, as The Washington Post reported, it’s not easy to contact a live person for help if you need it.

To set up the account, you will need:

• Your social security number or tax identification number.
• A US mailing address.
• An email address.
• A phone number.
• A checking or savings account number that you will use to buy bonds.

You will also need to set up a picture for yourself, a secure password, and security questions. Finally, you will receive an email with your new TreasuryDirect account number. Once you log in for the first time, you will receive a password by email.

When entering your bank account information, make sure it is correct, as this information cannot be easily changed.

Also, be sure to keep your password safe, but also remember it. If you forget your password and lock yourself out of your account, it’s not an easy fix, CNBC reported.

For some people, creating a TreasuryDirect account can take the 10 minutes suggested on the website. But others may face additional complications.

Some investors may be selected to complete an “Account Authorization Form”, which must be signed at a bank or credit union with a signature guarantee from the financial institution and then returned by mail. It happened to Singletary, and she reported it was “a byzantine process” and “a ridiculous hurdle for people who were just trying to make their money work.”

A Treasury spokesperson emailed Singletary in response to his complaint, noting: “We are working on changes which would allow notarization – instead of certification or guarantee – of an applicant’s signature on the TreasuryDirect Account Authorization Form (FS Form 5444).”

Find out: Your credit card can reimburse you for canceled flights and pay for lost items – Here’s how
POLL: Do you think you can retire at 65?

Even so, for Americans willing to hang in there and take a few extra steps, Series I bonds can be a lucrative and safe investment in uncertain times.

Advantages

• Yield of 9.62% on bonds purchased through October 2022.
• Helps your savings keep pace with inflation.
• Virtually risk free.
• You buy bonds at face value and earn money through interest.

The inconvenients

• Complicated to purchase.
• Limit of $10,000 in electronic I bond purchases through the Treasury per year and $5,000 in paper bonds.
• Must hold bond for at least 1 year.

More from GOBankingRates