SAVINGS BONDS COME in two flavors: EE and I. Series EE bonds pay a fixed interest rate for up to 30 years. For bonds purchased in the six months starting May 1, 2023, that rate is 2.5% a year. Meanwhile, I bonds increase in value along with inflation, plus holders can sometimes earn a small additional sum. For I bonds bought during the six months starting May 1, 2023, that additional sum is 0.9 percentage point. Result: The annualized yield for the first six months will be 4.3%, thanks to recent inflation.
Given that EE bonds pay just 2.5%, while I bonds pay 0.9% percentage point on top of the inflation rate, I bonds would seem almost certain to be the better deal—unless you plan to hold for 20 years or more. The unusual wrinkle: The Treasury Department guarantees that the value of EE bonds will double in value over 20 years. That means that, while the interest rate is just 2.5% a year for those with shorter holding periods, you’re guaranteed 3.5% a year if you keep your EE bonds for 20 years. What if you sell any earlier? You’re stuck with the 2.5%.
With both EE and I bonds, you can defer paying taxes until you sell or the bond matures, at which point the accumulated interest is subject to federal income taxes, but not state and local taxes. You may, however, be able to avoid that tax bill if the proceeds are used for college costs, as we discuss in the college chapter.
Savings bonds can be purchased in amounts as small as $25. An individual could potentially buy $25,000 of savings bonds in a year, with the maximum set at $10,000 for EE bonds, $10,000 for I bonds and $5,000 for I bonds bought with a federal tax refund. You can sell a savings bond after holding it for one year. But if you sell within the first five years, you lose the last three months of interest. For more information, go to TreasuryDirect.gov.
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A warning about bank accounts on Treasury Direct: I have decided my husband and I should each invest $10,000 into our dormant Treasury Direct accounts. (We bought I-bonds online in the early 2000’s and cashed the bonds out in 2019 to buy property, leaving a zero balance in each account.) When I went onto my Treasury Direct account today, it listed a bank account I closed in 2020. When I tried to update my bank account, I could not do it online. Instead, I was directed to a complicated offline process to change it. I think people who buy these bonds need to be aware of this issue.
To change bank accounts, not only do I have to download and mail a form, but I must personally go before a bank officer and get my signature certified for the new bank, with a stamp. A notary is not sufficient for this form. All my banking is online. There is no officer of a bank or institution I can appear before!
FS Form 5512 tells me that any of the following can certify my signature in person and stamp my form: “The financial institution’s official seal or stamp, including: Signature Guaranteed seal or stamp; Endorsement Guaranteed seal or stamp; Corporate seal or stamp; or Issuing or paying agent seal or stamp (including name, location, and four-digit identification number or nine-digit routing number), or the seal or stamp of Treasury-recognized Signature Guarantee Programs or other Treasury-approved Medallion Programs.” I have no idea what these are, or who could certify me.
If I started a new Treasury Direct account, I could input any bank info, no questions asked or signatures required. But since I already have an account under my Social Security number, I can’t set up a new one. This leaves me, a financially aware and normally competent adult, in the dark about how I am to change bank accounts. TD says I can’t delete an old bank account until I have a new one in place.
If someone who bought an I-bond in April or May changes banks at some point before they redeem it, they will face this problem. What’s a buyer to do? If I can buy I-bonds online, why can’t I change my dead bank account online? Buyers, beware, and enter more than one bank account to start. As for me, I’m stuck.
Medallion guaranty stamps/seal (like an enhanced notary as you’re discovering) can be done at almost any bank. If you don’t have a bank relationship with them see if they will do a Medallion guaranty for you (they may charge a very small fee like less than $5). Do an online search for Medallion guaranties in your area. Some other notary type services may offer them, but I’m only aware of banks that do them. Good luck.