Money · October 25, 2022

How To Make Money Off Bonds

How To Make Money Off Bonds – Written by James Royal Written by James RoyalArrow Right Investing and Asset Management Reporter Senior Reporter James F. Royal, Ph.D., covers investing and asset management. CNBC, Washington Post, The New York Times and others cite his work. Connect with James Royal on Twitter Twitter Connect with James Royal on LinkedIn Linkedin Contact James Royal via email James Royal

Edited by Brian Beers Edited by Brian BeersArrow Right Managing Director Brian Beers is the wealth team editor at . He oversees editorial coverage of banking, investing, the economy and all things money. Connect with Brian Beers on Twitter Twitter Connect with Brian Beers on LinkedIn Linkedin Brian Beers

How To Make Money Off Bonds

How To Make Money Off Bonds

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How To Make Money Off Bonds

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If you are looking for an investment with high interest rates, inflation protection and the safety of government support, then Series I bonds could be an attractive addition to your portfolio. Interest rates on these bonds rise as inflation increases, ensuring that your payout keeps up with rising prices and that you don’t lose purchasing power over time.

This inflation protection on bonds I has caused an uproar among savers over the past year, with inflation hitting its highest level in about 40 years to 8.6 percent in May 2022. Savers have been looking for ways to protect their money from destruction. of rising prices.

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Here’s how to buy Series I bonds, how these index-linked investments work, and what to watch out for. Plus, we’ll reveal a little-known tip that will allow you to invest even more in these special bonds.

The US Treasury does not allow just anyone to buy I bonds, so you need to check if you qualify to buy them.

Additionally, trusts and estates can purchase I-bonds in some cases, but corporations, partnerships and other organizations cannot.

How To Make Money Off Bonds

If you meet the eligibility criteria, you can proceed to open a TreasuryDirect account. This account allows you to buy bonds (including Series EE bonds) as well as T-bills, T-bills, Treasury bonds and TIPS directly from the government.

How To Buy I Bonds

For individuals setting up a TreasuryDirect account, you’ll need a taxpayer identification number (such as a Social Security number), a US address, a checking or savings account, an email address, and a browser that supports 128-bit encryption.

You enter your information during the instructions and can create the account in just a few minutes. You set up a password and three security questions to protect your account.

Children under the age of 18 cannot open a TreasuryDirect account directly, but a parent or other adult guardian can open an account for the minor child that is linked to their own.

After you set up your account, TreasuryDirect will email your account number, which you can use to log into your account. Once in the account, you can select “BuyDirect” and then select Series I bonds and the amount you want to buy. Then select the bank account you want to use and the date you want to buy. You can also set up recurring purchases.

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For e-bonds over $25, you can buy in any increment down to a cent. That is, you could buy a bond for $76.53, if you wanted to.

Review your purchases and then submit your order. Once your order is complete, your TreasuryDirect account will hold your bonds and you can view them there at any time.

If you want to use your federal tax refund to buy paper I bonds, you should complete Form 8888 and submit it when you file your tax return. Paper bonds are sold in increments of $50, $100, $200, $500 and $1,000. After the IRS processes your return, your bonds will arrive in the mail.

How To Make Money Off Bonds

A Series I bond is a bond issued by the US federal government that earns interest in two ways: a fixed rate and a variable rate that is adjusted twice a year for inflation. When inflation increases or decreases, the variable interest rate is adjusted to compensate and protect the purchasing power of money.

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The bond earns interest for 30 years or until you pay it off—and it’s backed by the U.S. government, historically one of the best credit risks in the world.

For the first six months that you own the I bond, you will receive the prevailing interest rate during that time. For example, any I-bond issued between May and October 2022 earns 9.62 percent interest per year. That means even if you buy the bond in October, you’ll still earn that rate for a full six months. Then your bond will adjust to whatever new rate is announced in October.

The bonds cannot be redeemed during the first 12 months that they have been held. If you pay the bond before it is at least five years old, you will pay a penalty equal to the interest of the last three months. However, special provisions may apply if you have been affected by a natural disaster.

Series I bonds also offer tax advantages. Interest on the bonds is exempt from state and local taxes, although you still have to pay federal taxes on the gains. And using the interest to pay for higher education can help you avoid paying federal taxes on the interest income, too.

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That means a person could buy up to $15,000 in I bonds each year, assuming their tax payment is large enough to max out the paper I bond portion. Many savers aren’t aware that their federal tax return gives them an extra helping of I bonds, so it might make sense to keep more money

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