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  • Archive for April, 2010

    The Ins and Outs of I Bonds

    Thursday, April 8th, 2010

    Whether you have $25 or $2,500 to spare, there are smart ways to invest your money to build your retirement savings.  During the month of April, WISER is highlighting different strategies for saving, depending on your financial situation, age and personal feelings about risk taking. Use this month to brush up on your financial knowledge to make the most of your money.  First up: a discussion about I bonds—one of the easiest ways to save!

    Do you have an extra $5 each week that you could set aside towards an investment? If you do, after five weeks you will be able to purchase an I Bond from the U.S Department of the Treasury.  Individuals can purchase I bonds for as little as $25 or $50, all the way up to $5,000 each year. This is a great investment for those who prefer low risk, have smaller investment funds, and/or are getting closer to retirement age.

    What are I Bonds?

    I bonds are savings bonds with interest rates that are tied to inflation. This interest is added to your I bond each month and compounded every six months. The current composite rate of I bonds is 3.36%, which holds true until April 30, 2010.  Your I bond will earn interest for 30 years, after which you should cash it in.  If you wish to, you can cash in your I bond anytime after 1 year. If you keep the I bond(s) for five years, you will not be penalized for cashing it in anytime after.

    How Can I Buy an I Bond?

    There are a few ways that you can purchase I bonds:

    ▪   You can buy electronic savings bonds through www.treasurydirect.gov.

    ▪   If you prefer a paper bond, you can purchase one through a bank, and it will be mailed to you within 15 days.

    ▪   One of the newer options available is through your tax return.  You can choose to receive all or a part of your tax refund in the form of a paper I bond, in multiples of $50.  Just fill out Form 8888 and include it with your federal tax return.

    ▪    Lastly, you can elect to have automatic deductions taken from your checking or savings account that will accumulate in a TreasuryDirect account until you make a savings bond purchase. (The TreasuryDirect account will not earn interest.)

    Why Should I Purchase an I Bond?

    ▪  All treasury bonds are considered to be “risk free,” which is not the case for stocks.

    ▪  I bonds are predictable and reliable, making them good options if you are saving for something like education: you can predict how long it will take you to save what you need, while earning more interest than a traditional savings account would.

    ▪  The safety of I bonds is advantageous if you are nearing retirement and do not want to risk losing some of your savings without ample time to earn it back.

    ▪  Finally, the interest you earn on any U.S. savings bond is exempt from state and local income taxes. You do not have to pay federal income tax until you redeem the bonds, or after 30 years.

    WISER

    About Us

    WISER is a nonprofit organization that works to help women, educators and policymakers understand the important issues surrounding women's retirement income. WISER creates a variety of consumer publications including fact sheets, booklets and a quarterly newsletter that explain in easy-to-understand language the complex issues surrounding Social Security, divorce, pay equity, pensions, savings and investments, banking, home-ownership, long-term care and disability insurance.

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