Buying I-Bonds Online

I just completed an online I-Bond purchase. The transaction will actually close tomorrow (April 30), giving us the benefit of a full month of interest dating from April 1. (That is one of the buyer-friendly peculiarities of purchasing I-Bonds using the Treasury Direct online buying system.) If you have never bought an I-Bond using the Treasury Direct system, read the rest of this post for a quick review.

First, you must have a Treasury Direct account. Because of all the security involved in using the system, you can’t open the account and use it on the same day. You will have to wait until you are sent an “Access Card” which contains a printed serial number and security code matrix that is used when you access the account. The code matrix is in addition to your account number and password. On top of that, you cannot enter your password or access code using a regular keyboard. You must use the Treasury Direct system “virtual keyboard.”

Part of your account set-up includes linking at least one bank account to your Treasury Direct account. This bank account will be electronically accessed by the Treasury Direct system to withdraw the funds needed to buy your bonds.

You also must decide how bonds purchased by your account will be owned. In our case, my account is in my name but the bonds are payable to my wife if I die. My wife has a similar arrangement with her account. Having two separate accounts allows each of us to purchase the maximum in bonds annually. At the present time, the maximum per person is $5,000 in electronic bonds and $5,000 in paper bonds.

I-Bonds can be purchased in increments of $25. Interest is tax deferred, until the bond is redeemed. The maximum holding period is 30 years. The minimum holding period is one year.  If the bond is redeemed before 5 years, there is a three-month interest penalty.

Because I bought this bond during the January-April interest period, I will earn 3.36% on the bond for the next 6 months. The fixed interest rate component is 0.30%. After six months, the interest rate will depend on the inflation rate.

After your account is set-up, and you are logged into your account, the actual purchase transaction can be concluded in a few seconds. You can make a one-time purchase and/or schedule a series of future purchases.

If you don’t have any inflation-adjusted securities in your retirement portfolio, give it some thought. I think you will be glad that you did.

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