How to Buy I Bonds (and Take Advantage of Up to 9.6% Interest)

Speaker 1: IBOs, I'm gonna tell you what they are, how you can buy them and why they can bring you way more returns than what you're getting at the bank. Speaker 1: If you've been listening to the news or buying literally anything in the past few months, you've probably noticed prices are way up, but there is a silver lining and it's called an IBO. Now, before we get into how IBOs work and how you can get in [00:00:30] on the action, a little bit of a disclaimer, this isn't financial advice. So make sure you do plenty of research based on your own situation before you commit your hard earned money. That said the one thing that sets IBOs apart from other investments like cryptocurrency or speculating on the stock market is that they're backed by the us government. So there's a lot more security and peace of mind. So let's start with the basics. What is an bond? Well, to get the low down, I hit up CS [00:01:00] resident money expert, and a at large have seen at money FA Torabi Speaker 2: An I bond is a government issued bond. You can buy it straight from the treasuries website. It's basically a type of savings instrument that attempts to track your cash alongside inflation, more or less. Um, it means that the interest it earns is roughly in line with the rate of inflation. Speaker 1: When inflation is low, return is also low and inflation has been low and pretty steady for the past few decades. But over the past [00:01:30] year or so, inflation has been shooting up in March, 2022. It hit 8.5%. The highest it's been since 1981, Speaker 2: If your money was just in a standard savings account, earning 0%, uh, your savings would actually be losing value. For example, saving a dollar this time last year would actually be worth 91 cents today. Given the current rate of inflation, Speaker 1: You buy IBOs on the treasury direct website. According to the treasury, you can own an [00:02:00] bond. If you have a social security number and you meet one of three conditions, one you're a us citizen, either living in the us or abroad two, you are a us resident or three. You're a quote civilian employee of the United States. No matter where you live, you just need to set up a treasury direct account to buy them online, to open your account, head to treasury, direct.gov, go to the interview jewels tab at the top and click on my accounts. Then click open an account and apply. Now choose [00:02:30] individual, then submit on the next page, fill out the account owner information and taxpayer identification number, which in this case is your social security number. Then fill out your bank details, read the Ts and CS and click submit next up, review your info and click submit again to get to the security page. Speaker 1: You'll need to choose an image to personalize your account and set up your password and security questions. After all that your account number is sent to your email address. You log in with that, which sends [00:03:00] you another email this time with a one time password, which you can finally use to log in. All right, now you're on your treasury direct account to buy bonds, go to the buy direct tab at the top of the screen, then choose series. I under the savings bonds heading now choose how, how much you wanna buy and whether it's a single or repeat purchase, you can spend anywhere between $25 to $10,000 down to the nearest penny. The max you can buy online in a calendar year is [00:03:30] $10,000 worth, but you can also buy an extra $5,000 of paper IBOs through your tax return. Click submit to review the details of your purchase. Speaker 1: Submit again, and you're done. It should take one business day for your purchase to show up in your account. So now the big question let's talk returns. The interest on IBOs is a combination of a fixed interest rate, which is set when you buy the bond and a variable interest rate. That's set by the treasury every six months at the time of making this video [00:04:00] in April, 2022, that combined rate is 7.1%. And the rate is expected to go up potentially hitting 9.6%. That's a lot better than what you'll get from a standard savings account at the bank. And the great news is the interest is compounded every six months. So six months in the interest you earn is added to the principle amount that you purchased originally to create a new principle value. That's the power of compound interest. Baby IBOs earn interest for [00:04:30] up to 30 years, but you need to keep them for at least one year before you cash them out. And if you take them out before five years, you'll lose the previous three months interest. So as a, a world example, say you cash out after 18 months, you'll only get the first 15 months worth of interest. So who should be buying IBOs? Well, here's UCH from CNET money. Again, Speaker 2: IBOs can be a safe Haven for cash that you may not need for the medium term. In my opinion, uh, for example, you might need money for a home [00:05:00] down payment in the next five years. Things are things that you foresee happening in the future, but any money that you won't need for five years or more, you may be able to afford more risk and might even make more money investing in the stock market. Speaker 1: So if you've got a bit of spare money that you don't need right away, this could be perfect, but remember you need to keep your eyeballs for at least a year. So this isn't for cash that you, you might need in an emergency. And importantly, you still need to pay taxes, but the good news is it's just federal tax, [00:05:30] so not state tax. So that's everything you need to know about IBOs big, thanks to my colleague, Farra from CNET money for helping us break this one down. And remember if you want more practical tips like this far, has you covered be sure to subscribe to CNET money, to find out how you can get your money working harder for you.