By Dr. James M. Dahle, WCI Founder
I finally broke down and bought some I Bonds, aka Series I Savings Bonds. As inflation continued to rise throughout 2021 and into 2022, especially with its rise to 8.3% in April 2022, it seemed sillier and sillier to earn 0.55% at Ally Bank (or a negative real yield on TIPS) when I could be making more than 7% with I Bonds with about the same risk. While it's hard to get too excited about earning 0% real, it certainly beats losing 7% real.
So in December, I opened not one but two TreasuryDirect accounts—one for Katie and one for me. Our trust will probably open one soon, too. I then proceeded to buy the maximum $10,000 of I bonds in each account. In the early part of 2022, I'll do it again for a total of $40,000 in I Bonds.
It was hard to get excited about I Bonds when inflation was well-controlled. The main problem I had with them was not the low yields, though. My problem was the $10,000 limit. But when the difference between a money market fund and an I bond with similar risk becomes 7%, I figured it was worth it. Even in the first year where we just have $40,000 invested, 7% of that is $40,000 * 7% = $2,800. Considering I spent less than 30 minutes opening accounts and buying them, it seemed a good use of my time.
[If you bought I Bonds after May 1, 2022, the interest rate rose to 9.62%, up significantly from the 7.20% in the previous six months. That I Bond rate will stay at 9.62% until November 1, 2022, when the interest rate will adjust again.]
I've always had inflation-adjusted bonds in my portfolio (10%), but I've just used TIPS in something like the Vanguard Inflation Protected Securities Fund or the Schwab TIPS ETF. Going forward, I'll use a combination of I Bonds and TIPS. As my ratio of taxable to tax-protected space in the portfolio continues to rise, I may eventually even have to move the TIPS to taxable and start buying individual TIPS at TreasuryDirect. Unlike corporate bonds, individual treasuries are no more risky than a fund full of them, at least for the same duration.
How to Open an Account at TreasuryDirect to Buy I Bonds
In this post, I'll walk you through step-by-step instructions to open a TreasuryDirect account and how to buy I Bonds within the account. Note that you cannot do this inside a tax-protected account like a 401(k) or Roth IRA.
TreasuryDirect is a government website that is used to buy and sell government debt directly without any middle man. There are no fees, commissions, or expense ratios. Your fellow taxpayer covers all the costs of your investment there. That's the good news. The bad news? Well, it's a government website run by bureaucrats who don't care all that much about your business. It seems plenty secure but not particularly user-friendly. It wasn't too bad though, as you will see.
The homepage is extremely busy and filled with all kinds of links. The one you want is in the upper right.
There are other accounts you can open there, but you just want the plain vanilla TreasuryDirect account. You can buy I Bonds, EE Bonds, TIPS, T-bills, etc. all from that account.
This is just another busy, useless page. Click through at the lower left.
On this page, you select the type of account you're opening. For most people, it will be individual. However, you may want a trust account, which is at the bottom.
From here, the process is pretty straightforward. You just provide your personal info, choose a password (I recommend you generate a strong password using something like LastPass), and confirm everything. I didn't shoot any more screenshots as it's really straightforward and it would be a pain to black out all that personal info. You should also link the account to your checking account (that's what I did) to make purchases simple. You can also link it to your savings account if that's an easier way to buy your bonds.
Note that it asks for your driver's license number. This is not required information, but I provided it anyway, just like I do for any bank or brokerage account I open. I think it's generally used to help the bank comply with money laundering and anti-terrorism laws. I have no idea what happens if you do not provide it to TreasuryDirect.
If you are also opening an account for your spouse, you will need to repeat the entire process. After you create the account, you will need to log back in before you can do anything. The link is on the upper right on the homepage, a little above where you set up the account. This is the sucky part. You can't just paste in that secure password from LastPass. You have to type it in using a little keyboard that sits on the web page. I'm sure it's very secure, but it's a pain.
How to Purchase I Bonds
Now that you have a TreasuryDirect account, you can buy some individual securities in it, such as I Bonds. This process is even less complicated than opening an account. Take a look. First, log back into your TreasuryDirect account. Once you are logged in, you'll see this page:
This page has lots of interesting info, like the circled interest rates being paid on savings bonds right now (in the case of I Bonds, that interest rate is tweaked every six months). It also tells you what you own in your account. Click on the link in the top menu that says “BuyDirect” to go on to the next step.
You can buy all kinds of treasury bills and notes and bonds on this page. Maybe I'll do a post on that later, but in this case, just click the radio button labeled “Series I” and hit submit.
On this page, you simply select how much you want to buy (the maximum $10,000 per account in this case), select your bank (blacked out above), choose a date (like next available), and hit submit. If you just wanted to just buy a little each month, you could set all that up to take place automatically.
This is the final confirmation page. Make sure the info is correct, hit submit, and you're done. Within a few days, you'll have I Bonds in your account.
For a few people, after they create their account when they go back into it they are asked to go to your bank and get a signature guarantee from the bank. I'm not sure exactly who will and who will not have to do this, but if the government cannot verify who you are electronically, it will likely ask for this. If you have moved recently or have your credit frozen, this may happen to you. While it is undoubtedly a pain to do this (and especially without knowing whether you will or not when you start), it will only cost you a few minutes and a little hassle. There is no additional cost.
I Bonds provide inflation-adjusted but still very safe investment returns. The main downside is that you can only buy $10,000 a year of them. While you can increase that amount by opening accounts for yourself, your spouse, your kids, your businesses, and your trusts, it's hard to have them as a major holding in a large account. Otherwise, they're a great alternative to TIPS, and at the end of 2021 and the beginning of 2022 at least, they yield dramatically more. You can learn more about I Bonds here.
What do you think? Have you used TreasuryDirect? Was it easy or did you run into any problems? Do you like the idea of buying I Bonds? Comment below!