Whether you call it cash reserves or a “rainy day” fund, having easily accessible money is a must during times of uncertainty and change.
In today’s low interest rate environment, one reliable source of interest continues to be the U.S. Series I Savings Bond, which currently pays 2.2 percent interest guaranteed for six months and offers some tax benefits as well. Future interest rates depend on inflation for the previous period. Interest earned on Series I Bonds is exempt from state and local taxes and interest accrues until the bonds are redeemed. You only pay federal income taxes on the interest in the year they are redeemed. Depending on your income level, you may be able to avoid income taxes on the interest altogether if the bonds are registered correctly and used for qualified college expenses.
A disadvantage of Series I Bonds is that they must be held for a minimum of one year. Bonds that are redeemed within five years forfeit three months of interest.
At the beginning of the year, the U.S. Department of the Treasury made a series of policy changes related to purchasing savings bonds, which include the fact they can only be purchased online. The online store, located at www.treasurydirect.gov, requires purchasers to set up an account that is linked via account and routing number to a personal checking account. The link to checking accounts allows for electronic purchase and redemption of savings bonds.
The Treasury Department has increased the amount of Series I Savings Bonds an individual can purchase in a given year. Prior to 2012, only
$5,000 could be invested using this vehicle, but beginning in March the limit has been raised to $10,000 per person.
Michael Haubrich is a certified financial planner and the president of Financial Service Group Inc. in Racine.