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

The Bureau of Labor Statistics yesterday released inflation numbers for September. The Consumer Price Index for All Urban Consumers (CPI-U) rose by 0.4 percent in September on a seasonally adjusted basis, or 8.2% over the past 12 months before seasonal adjustment. The CPI numbers now allow us to calculate the inflation rate on I bonds that will take effect in November.

Using the month-by-month data, the new inflation rate will drop to approximately 6.47% starting next month. Keep in mind that we don’t yet know the fixed rate portion for November I bonds. The Treasury Department will release that information next month. The rate makes I bonds an excellent place to invest cash.

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

How to Take Advantage of the 9.62% Rate Before November

If You Haven’t Bought $10,000 Of I Bonds This Year

For those who haven’t purchased I bonds this year, now is the time to do it. You can purchase up to $10,000 a year per person. If you make the purchase by October 28, 2022, you’ll receive the current 9.62% annualized rate for the first six months.

This confuses some folks. Even though the rate will change 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 rate for six months.

Keep in mind two things about I bonds. First, you cannot cash them in for the first 12 months. Second, if you redeem an I bond within the first five years, you’ll forfeit 3 month’s worth of interest.

If You Have Purchased $10,000 Of I Bonds This Year

For those who have already purchased their limit in I bonds, there are still strategies available to buy even more.

First, those with trusts can buy I Bonds in the name of the trust. Many families have revocable living trusts, for example, which can purchase I Bonds subject to the $10,000 limit. In some cases, families may have more than one trust, thus increasing the limits they can purchase. You’ll find resources for trusts on the Treasury Direct website here.

Second, you can also purchase I bonds in the name of a business. The business can be a sole proprietor or an LLC. Even somebody with a side hustle can purchase I bonds.

Third, you can purchase I bonds as a gift. Parents or grandparents, for example, might purchase I bonds for their children or grandchildren. To purchase an I bond as a gift, you must know the recipients social security number, and the bonds are registered in the recipient’s name.

After an I bond is purchased as a gift, it remains in the buyer’s Treasury Direct account until 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 I bond in their account for years before delivering it to the recipient’s Treasury Direct account.

As odd as that may seem, it actually presents a fourth strategy for maxing out the current 9.62% rate. Spouses, those with significant others, or perhaps close friends can buy each other a $10,000 I bond as a gift.

If purchased before the new rates take effect, the I bond will earn the annualized 9.62% rate for the first six months. There is one catch, however.

When the I bond is transferred to the recipient’s account, it counts toward the recipient’s annual limit. If they’ve already purchased $10,000 in I bonds this year, you would have to wait until next year to deliver the I bond. Given that it earns the higher return from the start, this shouldn’t present an issue.

In theory, one could purchase more than $10,000 in I bonds as a gift this month for the same person. Just keep in mind that one cannot deliver more than $10,000 a year in I bonds to the recipient, and that assumes they haven’t purchased I bonds on their own.

You can check out a video on this strategy here.

One final note. Treasury Direct made some updates to its site this month. That’s the good news. The bad news is that the update broke parts of the website. One part that isn’t working is the buying of I bonds as a gift. The hope is the website will get fixed before the 9.62% rate goes away.