You have two options in purchasing I bonds and they come in two different forms too. If you are purchasing an I bond with your IRS return then the minimum that you can invest is $50 and these are dispatched in paper form certificate. If you are choosing to purchase an I bond with your Treasury direct account it can be as low as $25 and the certificates are sent electronically to your Treasury direct account.
The term for the bond is thirty years but as long as you hold the bond for a year you can then cash them in, you will lose interest on the bond if you cash it in before five years have passed.
The bond is non-transferable, so even if someone tries to sell you a paper certificate the transaction is not valid and the person selling will still get the money when the bond matures and you will have a very expensive piece of paper. They are worth the face value of the bond, if the bond says it is worth $25 then that is what you are paid plus any interest that has accumulated whilst the bond is still valid. Interest is only paid when the bond is cashed in; if this is before the five year mark you lose three months’ worth of interest off your bond. After the five year mark you do not lose any of the interest when it is cashed in.
Gifts and the tax man
It is possible to buy both forms of I bonds as gifts and it won’t affect the tax that you will need to pay, it will be transferred to the person receiving the gift. If you buy an electronic version of the I bond for a gift you will need to hold this on your Treasury direct account for a period of five days before you transfer it to the person you purchased it for. With it being an electronic I bond they too will need to hold a Treasury direct account with which to receive the I bond. The IRS gift will be sent in as a paper certificate.
It is a great item to have in your portfolio it is a low risk bond that at the end of the term or when you cash it in will have incurred some interest. This interest will be a lower rate because the product is such a low risk and a guarantee that your capital will be safe.
It is a great way to use any IRS returns that you receive. There is a maximum that you can invest in an I bond in any year. With the IRS returns you are allowed to invest a maximum of $5000 per year and the electronic version on the Treasury direct it is a maximum of $10000. It is a great way to invest small amounts of capital and to grow this money each year.