WEBVTT

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Hello and welcome to TreasuryDirect.

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This video is intended to walk you through
all you will need to know

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about the Series I Savings Bond,
how interest is calculated and earned,

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and how you can purchase, cash,
and hold on to these securities.

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To begin,
let's talk about some of the basics.

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An I Bond is a U.S. Savings Bond,

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which is a loan
made to the United States by an investor,

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which is then
paid back to you with interest.

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It is one of two options currently,
with the other

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being the series
EE Savings Bond.

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Because U.S. Savings Bonds are backed by the
full faith and credit of the U.S. Government

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They are very safe.

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They are registered securities,
meaning that only the person or persons

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named on the Bonds have any authority
to request transactions.

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Some key terms to remember is that both U.S. Savings Bond
options earn interest for up to 30 years.

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You can cash them prior to the 30-year mark,
but there are a few things to consider.

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First, you are required to wait
a full year before you can cash it.

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And second, if you are cashing it
prior to the Bond reaching five years old,

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you will forfeit the final
three months of interest as a penalty.

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After it has reached five years,
you can cash at any point

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for the current value of the Bond,
with no penalty.

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The interest earned on the Bonds
is accrued, or added to the Bond,

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over the course of its lifetime, and
all of it is paid out when you cash it in.

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While they are not taxed
at the state or local level,

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you will be required to report
any interest earned at the federal level.

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Typically, this is reported on your taxes
for the year you cash it out,

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but it can be done yearly, if you choose.

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Finally, there are some limits
to the dollar amount you can purchase.

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The minimum amount is $25 with a maximum
purchase limit of $10,000

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per calendar year, per Social Security
Number, of the primary owner.

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What sets the Series I Bond apart
is how it protects you from inflation.

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The Bond interest rate features
two components:

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a fixed rate and a
semi-annual inflation rate.

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After you purchase the Bond,
it will earn interest every month

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and that interest is
compounded semi-annually.

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This means every six months,
we apply the new interest rate

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to the original purchase amount, and all the interest
that has been added to the Bond's value.

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So, your Bond's
value grows both because it earns interest

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and because the principal value that the
interest rate is applied to gets bigger.

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The majority of I Bonds are purchased online
through a TreasuryDirect online account.

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You can make purchases for yourself
in any dollar amount to the penny

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from $25 up to the annual max of $10,000.

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The Bond may be registered in your name
alone, your name with a secondary owner,

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or your name with a beneficiary.

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The only way to purchase paper
versions of the Bond

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is to use the funds
from your federal tax refund.

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On the IRS Form 8888,

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you may elect to receive up
to $5,000 of your refund

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in the form of paper Series
I Savings Bonds or have the funds

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deposited into your TreasuryDirect account
to purchase I Bonds in electronic form.

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This $5,000 limit does not affect the $10,000 limit
described earlier,

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meaning you can purchase up to $15,000

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in Series I Bonds in a year for yourself

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as long as $5000
comes from your tax refund.

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You can also make purchases for others
by creating a gift registration

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which will have someone else's
name and Social Security Number,

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and will affect their purchase limit,

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once you deliver it to them
in electronic form.

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They will need to have
a TreasuryDirect account in their name

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to take delivery of the Bond
and to cash the Bond.

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For the paper Bonds from your tax refund,
you would just put the recipient's

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name in the registration.

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If you would like to register a Series
I Bond for an entity account,

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like a trust, estate, or corporation,

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you will need to establish an entity
TreasuryDirect account.

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To create an entity account,
you must be authorized to act alone

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on behalf of the entity, and all purchases
will belong to that entity.

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One of the best ways
to learn more about

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Series I Bonds is through the website
TreasuryDirect.gov.

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On the home page, you will be able to see
the current I Bond interest rate.

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This rate is valid for all I Bonds
purchased in the current earning period.

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Clicking the Series I Savings Bond
link will provide more information.

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As we talked about earlier, Series I Bonds
earn interest using an earnings rate,

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which is a combination of two separate
rates, a fixed rate and an inflation rate.

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The fixed rate,
which is set at the time of purchase,

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will never change
over the life of the Bond.

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The semi-annual inflation rate is based
on the average price of consumer goods

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using the Consumer Price
Index of all Urban areas.

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As the average cost of goods
like groceries, gas, and clothes

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go up, the interest rate will also go up.

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As the cost of these goods decreases,
the interest rate will also go down.

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We recalculate this interest rate
every six months,

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announcing the new rate
every May 1st and November 1st.

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Now, one benefit to Series I Savings Bonds
is that even in periods

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of deflation, times when the
price of goods has dropped,

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the value of the
I Bond will never go negative.

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Even when the inflation rate is negative
and would cause the earnings rate

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to be negative, we stop the combined
rate from going below zero.

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So, while you will not gain
any interest during that period,

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you will also not be losing any money.

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The earnings rate is
calculated using a formula

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which is found on the
TreasuryDirect.gov website.

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It takes the fixed rate
and the semi-annual inflation rate

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and calculates them
using the formula of

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the fixed rate plus two times
the semi-annual inflation rate

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plus the fixed rate times
the semi-annual inflation rate.

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Your earnings rate will
change every six months

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based on the issue date of your Bond.

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While the inflation rate is announced
each May 1st and November 1st,

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your Bond will pick up
the most recent inflation rate

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when your Bond reaches its
next six month anniversary.

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The new inflation rate and your fixed rate
are used in the formula

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to determine your new earnings rate
for the next six months.

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Here's an example:
You purchase a Bond in July.

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Its inflation rate, and thus
its earnings rate,

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will change every July and January.

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The fixed rate at purchase
will not change, but each July,

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the May inflation rate will be used
to calculate your new earnings rate

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for the period of July to December.

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Each January, the November inflation rate
will be used to calculate

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your new earnings
rate for the period of January to June.

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So now that we know more about

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how the Bond works, let's talk
about how to purchase one.

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TreasuryDirect.gov has information
under the Savings Bonds tab.

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Select the Buy a Bond link.

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Since we know that
the majority of Bonds are electronic,

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let's choose the Buying Electronic EE
or I Savings Bond link.

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TreasuryDirect is an online account
that allows customers to purchase,

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hold, and cash, Electronic Savings
Bonds and Marketable Securities.

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TreasuryDirect.gov
does have a guided tour to walk

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you through the process
of creating an online account.

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Let's look at it now.

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The first step is to determine the type
of account you would like to open.

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In this example,
it will be an individual account,

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which is already pre-selected.

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Then scroll down and click
the Submit button

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on the Individual Account
Application page.

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You must provide all the information
in the required fields.

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Once you've provided the information,
scroll down and check the box

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to certify your taxpayer
ID Number information.

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Then click Submit.

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On the review page,

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verify that all the information is correct

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and click Submit.

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You will then select an image
and enter a caption

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to be associated with your account.

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When completed, click Submit.

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Next, you will need to enter a password,
a password reminder

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and three security questions
and provide answers to them.

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Once completed, click Submit.

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That's it. You've established an
individual account with the U.S. Treasury

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Check your email to retrieve
your TreasuryDirect Account number.

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Let's meet Sam.

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Sam wants to create a TreasuryDirect Account
so that he can purchase a Series I Bond.

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Sam goes to TreasuryDirect.gov,

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creates an individual account
and logs into his account the first time.

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After Sam logs into his TreasuryDirect account,

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he can click on the How Do I?
link to learn more about the process.

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The How Do I? section has great information about
the main activities in TreasuryDirect.

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To purchase an I Bond,
Sam will need to create a registration.

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This will allow him to select
a secondary owner,

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a beneficiary,
or to create a gift registration.

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Let's now talk about how the I Bond grows.

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Here comes Sam again.

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Sam has decided to purchase a Series
I Savings Bond in his TreasuryDirect Account.

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He decides to purchase $100 on
Friday, July 8th.

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Because the Bonds will take a business day
to process, the Bond will be delivered

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to his online account on
Monday, July 11th.

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But since the Bond earns interest
at the start of each month,

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it will have an issue date of July 1st.

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The earnings rate, that combined rate
we talked about earlier, will be set

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with the fixed rate and the inflation rate
that was announced the previous May 1st.

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It's now November, and Sam's Series I Bond

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has now reached the tender age
of five months old.

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This is the first time
that Sam will start to see

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any of the interest
being earned on the Bond.

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Remember how you forfeit
the final three months of interest

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if you were to cash a Savings Bond
before five years?

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Well, TreasuryDirect will calculate that
into the value of the Bond.

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As the Bond grows, so will the interest.

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And once it reaches five years,

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all the hidden interest
will be added back into the value.

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Also, it is important to note
that while a new earnings rate

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will be announced on the 1st of November,

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it will not affect Sam's I Bond until it
passes its six month mark.

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Sam's I Bond is now entering
into the seventh month of his life

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and is about to experience a big change.

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The earnings rate that was
announced in November will now

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take effect on this I Bond as it has
passed the six month mark.

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The fixed rate will stay the same,
but will be used with a new inflation rate

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to calculate the new earnings
rate for the next six months.

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This is also the first time
the I Bond will compound the interest,

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meaning it will start calculating
the new earnings rate

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based off the principle
and the interest earned so far

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Happy birthday!

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Sam's I Bond is now one year old.

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Two major milestones will be
achieved this month.

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First, the earnings rate will change again,

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this time to the rate
that was announced the previous May.

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The interest will further compound
at this point too.

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The other major milestone is
that the Bond will now,

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for the first time,
be eligible for redemption.

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Keep in mind that the value
listed on TreasuryDirect

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will factor in that three month penalty
for early redemption.

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So Sam will only see interest
that is eligible to be cashed out,

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not the three months
that would be withheld.

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Now that Sam's Bond is five years old,
it will hit a few milestones.

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First, it will take on a new earnings rate

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just like it has done every six months
since it was issued.

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Secondly, the Bond is now eligible
for redemption without any penalty.

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The current value of the Bond
in Sam's TreasuryDirect account

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will now show the full value
with all the interest earned to date.

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Moving forward, the earnings
rate on Sam's Bond will continue to change

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every six months until it has reached
the ripe age of 30 years old.

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Once Sam's Bond reaches 30 years old
on the first day of the month,

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the final interest payment
will be added to the value of the Bond.

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The Bond is now considered mature
and will no longer earn interest.

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Since Sam's Bond is electronic,
it will automatically cash itself

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into Sam's C of I account, allowing him
to use the money to purchase future

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I Bonds, other securities,
or to send his money to his bank account.

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Sam will also receive a 1099 INT
the following January

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in his TreasuryDirect account
to report the interest to the IRS.

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And with that, the life cycle of a Series
I Savings Bond has ended.