Treasury/I-bonds purchase

U.S. Treasury securities are debt instruments issued by the federal government, backed by the full faith and credit of the United States.

32 steps across 8 sections

1. TreasuryDirect (www.treasurydirect.gov)

  • The only way to buy I Bonds and EE Bonds
  • Also sells T-Bills, T-Notes, T-Bonds, TIPS, and FRNs via non-competitive auction
  • No fees for opening an account or purchasing
  • Minimum purchase: $25 for savings bonds, $100 for marketable securities
  • Requires: Social Security number, U.S. address, bank account for funding
  • Limitation: No secondary market access; must hold to maturity (or cash savings bonds after 1 year)

2. Through a Brokerage (Fidelity, Schwab, Vanguard, E*TRADE, etc.)

  • Can buy T-Bills, T-Notes, T-Bonds, TIPS, and FRNs at auction or on the secondary market
  • Cannot buy I Bonds or EE Bonds through brokerages
  • Many brokerages charge $0 commission for Treasury purchases (Fidelity, Vanguard, Schwab)
  • Advantage: Can sell before maturity on the secondary market (at market price)
  • Advantage: Better portfolio integration and reporting

3. Through Treasury Bond ETFs/Mutual Funds

  • ETFs like SHY (short-term), IEF (intermediate), TLT (long-term), TIP (TIPS)
  • Provides diversification and instant liquidity
  • Management fees apply (typically 0.03-0.15%)
  • Does not provide the same "hold to maturity" guarantee as individual bonds

4. Current Rates (Through April 2026)

  • Composite rate: 4.03% annualized
  • Fixed rate component: 0.90% (locked for life of the bond)
  • Inflation rate component: 1.55% semi-annual (adjusts every 6 months based on CPI)
  • Next rate reset: May 1, 2026 (new rates for May-October 2026 purchases)

5. How I Bond Rates Work

  • Composite rate = Fixed rate + (2 x semi-annual inflation rate) + (fixed rate x semi-annual inflation rate)
  • The fixed rate is set at purchase and never changes for that bond
  • The inflation rate resets every 6 months (May and November) based on CPI-U changes
  • Your bond's rate resets on the 6-month anniversary of purchase

6. I Bond Purchase Limits

  • Trusts, businesses, and entities can also purchase $10,000/year each
  • Gift purchases: You can buy I Bonds as gifts (delivered to recipient's TreasuryDirect account), but they count against the recipient's $10K limit in the year delivered

7. I Bond Redemption Rules

  • Cannot cash before 12 months from purchase date
  • Early redemption penalty (months 12-60): Forfeit the last 3 months of interest
  • After 5 years: No penalty; can cash at any time for full value
  • Maturity: 30 years (stops earning interest after 30 years)

8. I Bond Tax Advantages

  • Federal income tax: Interest is taxable but can be deferred until redemption or maturity
  • State and local tax: Completely exempt from state and local income tax
  • Education tax exclusion: Interest may be tax-free if used for qualified higher education expenses (income limits apply; must be 24+ years old; bond must be in parent's name, not child's)

Common Mistakes

  • Not maxing out I Bonds before other fixed income
  • Buying I Bonds right before a rate reset
  • Forgetting the 1-year lockup
  • Ignoring the 3-month interest penalty
  • Not using the tax refund paper bond option

Pro Tips

  • Max out I Bonds annually
  • Buy I Bonds for the fixed rate
  • Married couples: double your limit
  • Use trusts/entities for additional purchases
  • T-Bill ladder as cash alternative

Sources

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