How to Buy I Bonds (Step-by-Step Tutorial) - YouTube

Hi, it’s Mia. If you're looking for a way to  invest your money right now but you aren't yet  

comfortable with the idea of investing in stocks  because of the volatility, I Bonds are a great way  

to start. There’s a lot of interest in these bonds  right now because the yield on them for the next  

6 month period is 7.12%! That’s a really good  deal for an investment with extremely low risk.  

In this video, I'm going to explain what I Bonds  are, why they are great to add to your portfolio,  

and show you step-by-step how to create an  account and buy them online. If you want to  

skip ahead to the tutorial on how to create an  account at TreasuryDirect.gov and start buying  

I Bonds immediately, I’ll include the timestamp  in the description below. Right now, the yield on  

the Series I Savings Bonds, also known as I Bonds,  is paying 3.54% for bonds issued between May 2021  

and October 2021, and 7.12% for bonds issued  between November 2021 and April 2022. That would  

give you an annual percentage yield of about 5.33%  if you buy before the end of October. The “I” in I  

Bond stands for “Inflation” since these bonds are  meant to keep up with inflation.The rate that is  

in effect at the time that you buy it will be  the rate for the first 6 months of your bond.  

That means that if you buy before the end of  October 2021, you will get a guaranteed return  

of 3.54% for the first six months and 7.12% for  the second six months. If you buy in November,  

you'll get 7.12% for the first 6 months,  but you won't know what the rate will be  

for the second six-months until April since the  rate is variable and changes every 6 months.  

Conventional wisdom is to buy in October so you’ll  know the exact rate that you will be getting.  

These rates are better than any high-yield  savings accounts and CDs available right now  

and is a great place to park some money if you’re  saving up for something like a house or wedding,  

and won’t need the money for a year or two,  or if you want to diversify your portfolio to  

reduce volatility from stocks, or you’re just  really risk-averse but want your money to keep  

up with inflation. So what are I bonds exactly?  I Bonds are a loan you give to the government,  

and in return, they pay you interest for that  loan. You have to hold your bond for a minimum of  

one year so the government gets to use that money  for at least a year. After that, you can cash it,  

also known as redeeming the bond, but if  you’ve held the bond for less than five years,  

the government will deduct the last three months  of interest from your redemption. The bond matures  

in 30 years. After 30 years, you will no longer  receive interest on it. The reason why government  

bonds are considered a safe investment is because  the risk of the government defaulting on your  

loan is extremely low. Another advantage of I  Bonds over a high yield savings account or CD  

is that the interest earned from I Bonds are not  subject to state or local taxes, only federal  

tax. If you sell an I Bond and use the proceeds  to pay for qualified higher education expenses  

at an eligible institution in the same calendar  year, the interest is exempt from federal income  

tax entirely! Plus, tax on the accrued interest  doesn't have to be paid until you redeem it,  

so you can hang on to that bond for up to 30 years  and cash it and pay taxes on the interest when the  

timeline works in your favor. For example, you can  wait until you are retired and in a lower income  

tax bracket to redeem the bond. So how do you buy  I Bonds? There are two ways that you can buy them:  

the first is online through treasurydirect.gov and  the second is when you file your tax return and  

you use your tax refund to buy them. You cannot  buy them through a brokerage or financial advisor.  

For online purchases, the minimum  amount that you have to buy is $25  

and the maximum that you can buy in a calendar  year is $10,000 per Social Security number or  

entity (like a business or trust). So if you were  married, you could buy $20,000 worth of bonds,  

$10,000 for the each of you and if you have  any kids, you can buy up to $10,000 per child.  

If you buy them when you file your taxes, you can  only buy it up to the amount of your tax refund or  

$5,000, whichever is lower, per tax return. The  minimum amount that you have to buy is $50. This  

amount that you can buy with your tax refund  is in addition to the $10,000 limit per person  

that you can buy online. Instead of requesting a  refund check or direct deposit, you would direct  

the IRS to buy I Bonds with your tax refund.  If you usually owe taxes, you can increase your  

withholdings through your payroll system by paying  $5,000 more in taxes than you normally would,  

or pay an additional or estimated tax payment  to the IRS online before the end of the year,  

which would ensure that you will get a  refund that will allow you to buy the I  

Bonds. When you buy them with your tax refund,  you’ll receive actual paper bonds in the mail.  

Make sure to record the serial numbers in  case they get lost or are stolen. The I bond  

interest is credited on the first day of each  month, and interest is compounded semiannually  

based on each savings bond's issue date. The  government sets the rate for the next period  

in May and November of each year. The rate is  based on a formula that combines a fixed rate  

and the inflation rate, which is based on the  Consumer Price Index for all Urban Consumers,  

CPI-U. The fixed rate remains fixed  throughout the life of your bond, however,  

the inflation rate changes every 6 months based on  the CPI-U. If the inflation rate is ever negative,  

then the government will just use 0 instead in  their formula to calculate the composite rate,  

so you won’t ever lose money. So now I’ll show  you step-by-step how to create an account to  

buy the I Bonds online. We’re going to  start at the treasurydirect.gov website.  

This is the official website from the U.S.  government to buy bonds. If you don’t have an  

account with them yet, you’ll need to click  on “Open an Account” to create an account.  

From here, we’re going to click on the  “TreasuryDirect” link. There are basically  

three steps to this process. The first step is  to choose the type of account you are opening.  

The second step is to provide your personal  information. And the third step is to choose your  

password and set up your security questions. We’re  going to go down here and click “Apply Now”. For  

this account, I will be setting up an Individual  account. You can also apply as a Corporation,  

Partnership, Limited Liability  Company, PLLC, Sole Proprietorship,  

or an estate or a trust. Click Submit. So  we’re on the second step, which is to fill  

out our personal information. You do need a social  security number or a tax identification number.  

If your trust has an EIN,  you can use that as well.  

So all the fields with an asterisk  by them are required to be completed.  

After you complete everything, you want  to scroll down, check this box to certify  

that it’s your tax ID and you don’t owe any  backup withholding, then click Submit. Verify  

the information you’ve entered is correct,  especially your bank account information. If  

you need to change or update your bank account  information after you’ve created your account,  

it’s a bit of a pain since you will need to  print out paperwork and physically mail it in.  

TreasuryDirect does that as a security  feature but it’s just a really slow method  

to update your bank account information. Now  click “Submit”. Here you’ll have to choose  

a personal image and caption that’s 3 to 30  alphanumeric characters to go with that image.  

Then click “Submit”. Here you’re going  to create a password and enter it twice.  

Add a password reminder, then  select three security questions to  

answer. So you don’t need to answer all of  these security questions, just pick three.  

Then click “Submit”. Your account is all set up.  TreasuryDirect will email your account number to  

you, which is what you will use to log-in. Go to  your email and write down your account number.  

Click on “TreasuryDirect Home” to go  back to the homepage where we can log in.  

To log in, we’re going to click on  “TreasuryDirect” under Account Login.  

Click on the little orange “LOGIN” button. Enter  the account number that was emailed to you.  

Then click “Submit”. Enter the one time passcode  that was emailed to you. I’m going to click on  

the box to register my computer. Then click  “Submit”. Now enter your password using the  

virtual keyboard. The password is not case  sensitive. Then scroll down and click Submit.  

From here, click on “BuyDirect” on top here.  

Click on “Series I”. Scroll down then  

click “Submit”. Click on “Add New Registration”.  

I’m going to register as a “Primary Owner” to set  this up as a joint account. You can also register  

as a “Sole owner” or “Beneficiary”. Fill out your  information, then click Submit. Enter the amount  

that you want to purchase. You can add multiple  bank accounts to your account, so make sure you  

are using the correct bank account to buy funds.  Then select the scheduled date that you want to  

buy the bond. I’d select a few days in advance to  make sure that it processes on time. You can also  

set up repeat purchases or select specific  dates of your choosing. Then click Submit.  

Review your purchase information  here and then click “Submit”.  

This is just the confirmation page.  You can close out of your account.  

When it comes time to sell your I Bond, you  can time the sale of your I Bond to reduce  

the three month penalty to two months  and a few days. When you buy an I Bond,  

you are credited with interest for the entire  month whether you purchase it on October 31st  

or on October 1st. When you sell an I Bond,  you won’t get any credit for a partial month,  

so it’s in your interest to sell at the beginning  of the month. For example, if you buy on October  

31, 2021 and sell on October 1, 2022, you will  have owned the bond for 11 months and 1 day. You  

will receive interest for nine months (with  the three month penalty taken into account),  

but only two months and one day of interest  will be deducted. Let me know in the comment  

below if you have any questions. If you found  this video helpful, please hit the Like button  

and subscribe to my channel for more money,  investing, and early retirement knowledge.