As Inflation Rises, Consider the Gift of I Bonds

As Inflation Rises, Consider the Gift of I Bonds
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I’ve previously discussed Series I saving bonds, which are a good hedge against inflation. The current I bond rate is an attractive 9.62% and is virtually riskless — even if interest rates fall in the future, the rate can never go below zero percent.


I bonds also avoid local and state taxes, and they are only taxable at the federal level. In fact, the one big downside to I bonds is the $10,000 yearly investment limit.


But it turns out there’s a way around this — a way to buy multiple bonds in the same year.


The answer lies in purchasing I bonds as gifts.


While each individual can purchase only $10,000 in I bonds for themselves per year, you can buy multiple I bonds as gifts for others. There’s a $10,000 maximum per recipient for each purchase, but there’s no limit to how many recipients you have and no limit on how often you can buy bonds for the same recipient. You could buy $10,000 in I Bonds to give to each of your five kids, for example, or you could buy your spouse five $10,000 I bonds.


That’s because TreasuryDirect differentiates between buying the bonds and delivering them to recipients. You can buy as many I bonds for others as you like, and they will sit in your account at TreasuryDirect until you choose to “deliver” them to the recipient.


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The limits kick in as part of the delivery process: You can deliver only one $10,000 I bond to each recipient per year, and you must make sure the recipient isn’t buying I bonds for themselves, or they will go over the annual limit.


You could gift the bonds in the next calendar year to avoid these limitations, or you could wait until the interest rate on I bonds has dropped, making buying new ones less attractive.


No matter when they’re delivered, the interest and holding period for the bonds start in the month you purchase them. That’s the best part: As the bonds sit in your TreasuryDirect account waiting to be delivered, they are accruing interest. And while the bonds must be held at least a year before they can be cashed in, the clock starts ticking when you buy them — if you buy someone an I bond now and give it to them in late 2023, they could immediately cash it in.


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Buying I bonds for others could certainly be part of an estate planning strategy. It’s important to note that buying an I bond counts toward your annual gift tax exclusion amount ($16,000 in 2022) in the year that you buy it, even if you hold on to it in your TreasuryDirect account and don’t deliver it to the recipient until later.


There are no gift tax limits when it comes to married couples, however, so you and your spouse could buy each other as many I bonds as you want. You’d have to hold the bonds in your account and keep the $10,000 I bond annual limit in mind when it comes to delivery dates.


How to Buy Bonds as Gifts

The process for buying gift bonds is a little more complicated than buying bonds for oneself. I highly recommend you take time to watch the Treasury Department’s Bureau of the Fiscal Service’s video on the topic. There is also a helpful, downloadable tip sheet outlining the process of both buying and delivering savings bonds.


In order to purchase a gift, both you and the recipient must have a TreasuryDirect account. A child under 18 can have a TreasuryDirect account if a parent or adult custodian creates a minor linked account. You will need to have the recipient’s full name, Social Security number, and TreasuryDirect account number on hand before you buy.


Pay close attention to the purchase review page when you do make your gift transaction. Make sure the purchase option reads “This is a gift,” since you don’t want to accidentally buy a bond for yourself.


When it comes time to deliver the bonds to the recipient, the Treasury Department has another video to guide you through the steps. There is no way to schedule delivery in advance: You’ll have to log into your account to deliver each bond. And you’ll want to make sure the recipient hasn’t already purchased bonds for themselves that year.  


Gifting I bonds is a great strategy to boost savings and take advantage of the current high interest rates. If you and a spouse are buying each other bonds, you can effectively “ladder” your redemptions without having to worry as much about maturity dates as you would with certificates of deposit (CDs).


I bond rates adjust twice a year, in May and November. There’s no way of knowing what the I bond rate will adjust to this fall, but at present, the rate is beating all CDs and high-yield savings accounts.


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About the Author

Lila Quintiliani, ChFC®, AFC®
Lila Quintiliani, ChFC®, AFC®

Quintiliani is MOAA's Program Director, Financial and Benefits Education/Counseling. She is a former Army Military Intelligence Officer as well as the spouse of an active-duty servicemember, and worked for over a decade at military installations as a personal financial counselor.