How To Buy More Than $10,000 Of I Bonds Before The Rate Drops

The Bureau of Labor Statistics released inflation figures for September on Thursday. The consumer price index for all urban consumers (CPI-U) increased by a seasonally adjusted 0.4% in September and by a seasonally adjusted 8.2% in the last 12 months. The CPI numbers now allow us to calculate the inflation rate for I-Bonds that come into effect in November.

Using the monthly data, the new inflation rate will drop to around 6.47% from next month. Keep in mind that we don’t yet know the fixed portion of bonds for November 1st. The Treasury will release this information next month. The interest rate makes I-Bonds a great place to invest cash.

The projected 6.47% is a significant drop from the current rate of 9.62%. At the same time, it’s still an excellent rate for a risk-free investment, especially given how both the stock and bond markets will perform in 2022. And the lower rate beats some of the best rates for savings accounts and CDs. Still, there are several ways to lock in the 9.62% interest rate even if you’ve already bought I-Bonds this year.

How to use the 9.62% rate before November

If you didn’t buy $10,000 worth of I-Bonds this year

For those who haven’t bought any I-Bonds this year, now is the time to do so. You can buy up to $10,000 per year per person. If you make the purchase by October 28, 2022, you will receive the current APR of 9.62% for the first six months.

This confuses some people. Even if the interest rate changes next month for new purchases, those who buy in October will first earn the annualized 9.62% for six months and then the new November interest rate for six months.

Note two things about I-bindings. First, you cannot redeem them for the first 12 months. Second, if you redeem an I-Bond within the first five years, you lose 3 months’ worth of interest.

If you bought $10,000 worth of I-Bonds this year

For those who have already bought their limit in Ibonds, there are still strategies available to buy even more.

First, those with Trusts I can buy bonds on behalf of the trust. For example, many families have revocable living trusts that can purchase IBonds up to a limit of $10,000. In some cases, families can have more than one trust, increasing the limits they can buy. Trust resources can be found here on the Treasury Direct website.

Second, you can also buy I-Bonds on behalf of a company. The company can be a sole proprietorship or an LLC. Even someone with a side hustle can buy I-Bonds.

Third, you can buy I-Bonds as a gift. For example, parents or grandparents could buy IBonds for their children or grandchildren. To purchase an I-Bond as a gift, you must know the recipient’s social security number, and the bonds are registered in the recipient’s name.

After an IBond is purchased as a gift, it remains in the buyer’s Treasury Direct account until it is transferred to the recipient. While it sits there, it earns interest and is subject to the same rules as any other I-Bond purchase. And the buyer can keep the IBond in their account for years before handing it over to the recipient’s Treasury Direct account.

Strange as that may seem, it actually represents a fourth strategy to maximize the current rate of 9.62%. Spouses, those with significant other or perhaps close friends can buy each other a $10,000 I-Bond as a gift.

If purchased before the new rates go into effect, the I-Bond will earn the annualized interest rate of 9.62% for the first six months. However, there is a catch.

When the I-Bond is deposited into the recipient’s account, it counts towards the recipient’s annual limit. If they already bought $10,000 worth of I-Bonds this year, they would have to wait until next year to deliver the I-Bonds. Since it gets the higher return from the start, this shouldn’t be a problem.

Theoretically, you could buy more than $10,000 in I-Bonds as a gift for the same person this month. Just remember that you can’t deliver more than $10,000 a year in IBonds to the recipient, and that’s assuming they didn’t buy any IBonds themselves.

You can watch a video on this strategy here.

One last note. Treasury Direct made some updates to its website this month. That is the good news. The bad news is that the update has broken parts of the website. One part that doesn’t work is buying I-Bonds as a gift. The hope is that the site will be fixed before the 9.62% rate goes away.