Finally Got Your Budget Nailed And Expecting A Tax Return? 3 Reasons To Opt For I Bonds

Posted on: 14 December 2015

Are you expecting a tax refund this year? Is this the first year that your refund won't be spent on a backlog of bills, and do you want to use it to start saving for your future? If so, read on for three great reasons why I Bonds are right for you.

They're Risk-Free

When you're just reaching the ability to save money, you certainly don't want to lose that money on high-risk investments. What you need right now is a security that will definitely increase your wealth, even if it does so in a slow and steady manner.

If you decide to invest in stocks and you pick the wrong one, your savings could be plundered in no time. And as far as bank savings accounts go, they're considered by many to be the riskiest investments around.

I bonds, though, are genuinely safe. They are one of the only investment options guaranteed by the federal government to not drop below zero percent interest. If the economy enters inflation, your interest rate will be adjusted accordingly. If the opposite happens and the economy enters deflation, you'll still be gaining because, while the cost of goods decreases, your I bonds can never be worth less than you initially paid for them. 

They're Hassle-Free

Will you really go to a bank to open a savings account or buy a CD? Will you really consult a broker about what stock options are available for your budget? If you answered "no" to these questions, then I bonds are right for you. With I bonds, all you have to do to get your savings plan in action is tell your tax preparer that you'd like to invest in paper I bonds, or fill out form 8888 if you're preparing your taxes yourself. 

The minimum denomination of paper I bond that you can purchase with your tax return is $50. Other denominations include $100, $200, $500, $1,000, and $5,000, with $5,000 being the maximum dollar amount you can spend in total on I bonds during any tax year.

Your bonds will be ordered as soon as your tax return is processed by the federal government, and you'll receive your paper bond certificates in the mail a few weeks following. Keep your bonds in a safe place, but know that you're not necessarily out of luck if you lose the paper copy. The department of treasury keeps a record of the paper bonds they issue. With your Social Security number, an approximate issuance date, and a description of the bond denominations, you should be able to cash in on your bond, even if the paper certificate has been lost or misplaced.

They Have Flexible Terms

In order to max out the amount of interest you can earn on your I bonds, you'll need to hold them for 30 years from the date they were issued. However, you aren't locked into a 30-year term. In fact, you can cash your I bond in as little as 12 months after it was issued, but keep in mind that you'll lose the last 3 months' worth of interest accrued if you choose to do so. Hold on to your I bonds for 5 years and you'll be able to keep every cent of interest they've accrued up until the date you cashed them in.

This amount of term flexibility makes the process of investing in your future seem less scary. You only have to commit to not being able to access your money for a year. After that, it's there if you need it for an emergency. If you don't, great -- it can go on earning you interest for another 29 years.

If, for the first time in your adult life, you have a stable budget and you're expecting a tax return that you'd like to save, paper I bonds are a great way to start down the road toward private wealth management. These super-safe investment options are guaranteed to increase your wealth and can be purchased with your tax return before the return ever even hits your bank account.